Goldman Sachs’s fixed-income traders were supposed to take back market share in the second quarter, halting years of declines. That now looks harder, after JPMorgan and Citigroup blew past analysts’ estimates last week.
Bloomberg News reports that Goldman’s franchise that trades bonds, currencies and commodities -- once fuelling record profits -- has dropped behind top U.S. competitors in recent years, leaving its market share in the 12 months through March the smallest since the financial crisis. Analysts predicted the second quarter would mark the end as big investors reacted to market swings. Then JPMorgan and Citigroup posted surprisingly strong results, driven by services in which they typically outdo Goldman.
Goldman Sachs’s underlying problem goes to the heart of its business. Almost three-quarters of its trading clients are hedge funds, asset managers, banks and brokerages -- a group bruised by market swings and stiffer regulation. Their travails have hurt revenue at Goldman, a specialist in structuring complex bets. In contrast, commercial banks like JPMorgan and Citigroup serve larger numbers of corporations that want relatively simple products like interest-rate swaps and currency hedges to guard against turmoil.
“You have seen a shift over the last couple of years in terms of what products have been more active,” said Devin Ryan, an analyst at JMP Securities. “It has not been in Goldman’s favour.”
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