Invest banking firms in the US witnessed an unusual fragility in bond trading last year, and most of them were forced to revisit their operating strategies.
The slump in trading of fixed income securities started in early 2017 and continued until the year end, and all the top players in the sector are feeling the pinch.
While the most affected by the protracted softness in bond trading is the investment banking division of Goldman Sachs, others including JPMorgan, Bank of America and Morgan Stanley are not far behind.
Alas! Adding to Goldman’s woes, income tax charges dealt a huge blow to its fourth quarter numbers. Indicative of its failure in fixing the fiscal issues over the months, the bank reported a 50% fall in bond trading revenue in the fourth quarter and operating loss for the first time in six years.
Sailing in the same boat, JPMorgan Chase reported its biggest earnings fall in three years in the recently ended fourth quarter, hurt mainly by muted bond trading. The case was more or less the same with Morgan Stanley, whose fourth quarter net income plunged 59% owing to the weak bond markets. Now, it needs to be seen what 2018 holds for fixed income investors in general.
The news about the stepping down of Goldman’s long-serving CEO Lloyd Blankfein was received by the banking sector with mixed reactions last week. It was the latest of the several executive changes the bank has witnessed since the second quarter of last year when bond trading collapsed to historically low levels.
While the iconic leader is credited for lifting the bank to a Wall Street topper, and for bringing in various technological innovations, his long tenure was also marked by some not-so-popular decisions. Blankfein is believed to have been under severe pressure ever since Goldman’s traditional business entered into the tumultuous phase. It is expected that when Blankfein steps down by end of the year, he would be replaced either by President David Solomon or co-chief operating officer Harvey Schwartz.
Adding to Goldman’s woes, income tax charges dealt a huge blow to its fourth quarter numbers
A few months ago, Jim Esposito and Justin Gmelich were named co-chief operating officers of Goldman’s FICC division, a newly created post. The leadership change was aimed at easing overdependence of the fixed income business on hedge funds.
The move came on the heels of the appointment of Stephanie Cohen as chief strategy officer, replacing Stephen Scherr.