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Wednesday, 18 October 2017

Shrivelled Sachs

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  • Anthony Peters

Anthony Peters on Goldman’s shrinking Q3 numbers.

On September 23rd, I had a Twitter exchange with the Tweet Queen and Guardian writer on US business affairs, Heidi Moore, after Citicorp had reported a 26% drop in its Q3 fixed income trading revenues. She wrote to me: “It’s probably more than honesty at play when it’s this big a miss. Would be surprised if bond revenues were down 10% across the board” in response to my sense that I felt that 26% was quite a benign number.

Evidently Heidi hasn’t been out here to experience what it feels like when business volumes implode, along with morale and enthusiasm.

However, there has always been one set of bullet-proof revenues to look forward to, namely those of teacher’s favourite, the mighty house of Goldman Sachs. That was until now. In the past, the day when Goldman reported its quarterlies was the one to look forward to, the one which reminded everyone that things weren’t quite as bad as feared and which reassured all that if you had the best people, you’d also get the best results.

If minds are cast back, they might even remember that Goldman’s results were treated by many in the equity community as the definitive measure of the state of the global economy, a bellwether of greater significance that GE or GM.

Well, yesterday’s Q3 report from Goldies would have made horrid reading for anyone who still felt that if it sneezes, the rest of the world catches a cold. In the event, the rest of the world opted not to blow its nose but put the handkerchief over its eyes and behaved as though nothing had happened.

Although Q3 net was flat at US$1.5bn, revenues fell sharply year over year from US$8.4bn to US$6.7bn and within that FICC (Fixed Income, Currencies and Commodities) core revs fell a staggering 47% to US$1.3bn.

Being bullet proof is all fine and dandy until somebody lobs a hand grenade in your general direction.

The fall of Cyclops

However, in finest Goldman fashion, the excuses were perfectly tailored and immaculately folded. Of course the numbers were soft but it was due to the firm’s focus on the highest level of institutional clients who are currently inactive as opposed to the other shops which play around with spivvy hedge funds who are less risk averse in these uncertain times. If you’ll believe that, you’ll believe anything.

The positive message was again that client activity had been curtailed by the uncertainty over Washington and its budgetary issues but that the customers were champing at the bit. I wish. Goldman’s advantage over its peers was always its ability to take on more risk than others and to manage it better when it had done so. Mind you, we’d also said the same about JP Morgan until we found out how it had been that the risks it ran always seemed to come good. In the land of the blind, the one-eyed man may be king but in the middle of the night, when there’s no moon, the advantage has gone and Cyclops can trip up just as easily. That he has just done.

The positive news for the jealous ones out here is that shareholders will be protected from the downturn by an unusual slashing of funds allocated to the bonus pool. Is that the firm tacitly admitting that even the best and happiest employees cannot fight the hostile environment? Has key shareholder Warren Buffett been rattling the cage? Who knows. Maybe Shakespeare was ahead of all of us when he wrote “If you prick us, do we not bleed? if you tickle us, do we not laugh? if you poison us, do we not die? and if you wrong us, shall we not revenge? If we are like you in the rest, we will resemble you in that”

I won’t be asking Heidi (@moorehn) to eat her words but it is nice to see Citi, so beaten up over the past years, for once looking better than even the mighty house of Goldman Sachs. Who’d have ever thought we’d be saying that?

Congratulations, markets

Meanwhile, in the real world, there has been precious little follow through buying after the twin troubles of the debt ceiling and the shut-down were temporarily taken care of on Wednesday. I don’t think that the sanguine response by markets is as much fear of what lies ahead but, with all due respect, a result of them not having gone into meltdown mode in the run-up. I cannot congratulate markets enough for not having slipped on the headless chicken suit over the past month and for having remained fairly grown up throughout. What they make of the short six week period between now and the de facto end of the trading year at Thanksgiving has yet to be seen.

Fundamentalists are screaming from the roof-tops that it is time to focus on realities again and they will be well chuffed with the reports out of China which show a rebound in Q3 macro indicators after a wobble in Q2. GDP growth is back to 7.8% from 7.5% and sentiment indices are up across the board even though retail sales are not much better than unchanged and industrial production in fact flattened slightly. I’d suggest the outcome to be a lot better than bad but not quite good enough to be good. As a drinking buddy of mine put it, whether the glass is half empty or half full, it still needs topping up.

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Alas, it’s that time of the week again and all that remains is for me to wish you and yours a happy and peaceful week-end. I heard something on the news this week that England had apparently qualified for the World Cup in Brazil. I didn’t know they played rugby in Brazil. I don’t think they do, do they? And they certainly don’t play cricket. So what’s all the fuss about?

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