Goldman Sachs Group Inc. Chairman and Chief Executive Officer Lloyd Blankfein said growth in emerging markets rather than fundamental changes in business strategies will be key to future profits.
“The biggest opportunity for us is not necessarily to do more things, but to be Goldman Sachs in more places,” Blankfein, 56, said today in New York at a conference sponsored by Bank of America Corp. About 12 percent of the firm’s revenue came from emerging markets since 2006, Blankfein said.
Goldman Sachs has added employees in emerging markets, including China, India, the Middle East and Latin America, at a compound annual rate of 33 percent since 2003, much faster than in developed markets, Blankfein said. Business in those markets will fuel an increase in the firm’s return on equity, he said.
“Experience tells us that these markets will not move in a straight line,” Blankfein said. “We must scale our investment in such a way so that we can stay the course.”
Goldman Sachs was the most profitable securities firm in Wall Street history before converting to a bank during the 2008 financial crisis. The firm rebounded in 2009 to set a new earnings record, then profit slumped this year and Goldman Sachs agreed to pay $550 million in July to settle a fraud lawsuit filed by the Securities and Exchange Commission over the 2007 sale of a mortgage-linked investment.
Blankfein said the firm also sees opportunities in the changing regulatory environment and in technological evolution. While regulations restrict Goldman Sachs and other banks from investing and trading their own capital, it will mean that Goldman Sachs’s fund business increases its return on equity and produces less volatile revenue, he said. Increased transparency in over-the-counter derivatives will give advantages to firms with the best technology, Blankfein said.
“As I think about our industry over the last 30 years, it has often fought change, fearing it was revolution instead of evolution,” Blankfein said. “Embracing change early has been fundamental to Goldman Sachs’s success.”
Asked whether he remains confident in Goldman Sachs’s ability to achieve a 20 percent or higher return on tangible equity over the economic cycle, Blankfein said he is “not sure we have to revise that.”