If Goldman Sachs' third-quarter results are any indication, the bank's investors may be hoping that the firm can bring its investment banking playbook to its struggling fixed income division.
The bank reported $1.3 billion in revenue fom the unit, missing analyst estimates and leaving some to wonder how the division, once a Wall Street darling, would again find its footing. Meanwhile, the investment banking division that Solomon ran before becoming president in December 2016 exceeded estimates and helped the firm beat profit forecasts.
Chris Kotowski, an analyst at Oppenheimer, said fixed income trading was his "main complaint" about Goldman's earnings. "Peers reported mixed results too, but this is a bit below average," he said in an analyst note.
The challenge for Solomon will be to bring his winning formula over to the securities division. Goldman insiders say Solomon is likely to take a more client-friendly approach within the trading unit, which has often preferred complex, more episodic transactions for hedge funds that command higher fees rather than more vanilla products that are lower margin and preferred by corporations.
In recent years, Goldman has tried to transform its business by trying to court large companies and asset management firms as clients. It's a strategy Solomon executed well in the investment banking division, where he gained a reputation for bringing "the whole firm" to bear on a relationship. In other words, making sure clients had access to whatever Goldman product or service they might need.
The struggles in the FICC business have shown in the sales leadership, which has cycled through four global coheads in the last three years. It announced new leadership again last week as it tries to sustain a recovery in revenue from bond trading, with John Willian, who had served as the banks' top fixed income salesperson, retiring from Goldman after being appointed to the job running global sales in 2016.
He was appointed alongside Jim Esposito, who has since ascended to cohead of the securities division, following the departures of previous global coheads Dalinc Ariburnu and Tom Cornacchia, who left in quick succession.
The bank has made some headway since then. After a tumultuous 2017 in which the firm saw its fixed income revenue drop precipitously compared to peers and faced questions from analysts about its strategic direction, it posted a 45% surge in the business during the second quarter. But that optimism was muted, with the third quarter declining 10% over last year.
In the first half of the year, Goldman saw its global fixed income ranking climb to No. 3 behind JPMorgan and Citi, according to industry tracker Coalition. It had previously been ranked in the No. 4 to No. 6 bucket.
