Goldman Sachs Group Inc., the fifth-biggest U.S. bank, is preparing for a faster global economic rebound than most forecasters expect, Chairman and Chief Executive Officer Lloyd C. Blankfein said.
“I don’t think that we can conclude that this slowdown is secular rather than cyclical change,” Blankfein, 57, said today at an investor conference in New York hosted by Bank of America Corp.’s Merrill Lynch unit. “The world will snap back and it will be a surprise and it will be faster than people think. I don’t know when that will be and we will gear ourselves accordingly.”
Goldman Sachs, which was the most profitable securities firm in Wall Street history before converting to a bank in 2008, last month reported its second quarterly loss in 12 years as a publicly traded company. The stock dropped 41 percent this year through yesterday to $99.29, below the company’s $120.41 tangible book value per share at the end of September.
Blankfein, while noting that the firm is cutting costs and adapting to changing regulation and slower economic growth, said he is wary of overreacting by assuming the world has permanently changed. He reminded investors that Goldman Sachs reported record earnings in 2009 following a quarterly loss in 2008, in part because competitors pulled away from making markets for clients.
“We’re managing our costs, obviously, but we’re not thinking necessarily that there’s such a radical, structural change,” he said. “We want to be in shape for the upturn.”
Blankfein said he expects Goldman Sachs’s clients and other “end-users” of investment-banking services to inform regulators of their concerns about the Volcker rule, which limits banks from trading on their own behalf and from investing in private-equity and hedge funds. Clients are concerned the regulations could reduce market liquidity and make trading more expensive, he said.
“As people weigh the costs to themselves, I think the intensity will rise,” he said. “I think user groups will chime in and make their interests known. In fact I’m sure of it.”
People familiar with the situation said last week that Goldman Sachs and Morgan Stanley were considering holding some of the loan promises they make to clients at the original cost instead of at the market cost. Asked to comment on a newspaper report on the deliberations, Blankfein reiterated the firm’s belief in the importance of mark-to-market accounting. He said the firm had had a debate on how to mark unfunded loan commitments to market.
Mark to Market
“From time to time we evaluate how we are marking certain kinds of things,” Blankfein added. “Somebody picked up on something, eavesdropped on a partial conversation or something and were, I guess, tapping into a conversation we were having specifically about how -- how, not will -- how you mark unfunded commitments that tend not to be drawn down just when they’re in the money.”
Blankfein has spoken at the annual Bank of America Merrill Lynch Banking and Financial Services Conference every year beginning in 2006, when he was named chairman and CEO. Guy Moszkowski, the Bank of America analyst who covers Goldman Sachs, cut his recommendation on the stock to “neutral” from “buy” in March.