Look East, Goldman
Here's a key reason why Goldman Sachs Group Inc.'s reshaping of its business to get more corporate clients makes sense, in Asia at least: The region's companies are richer than ever.
Goldman Sachs is in the midst of a shakeup sparked by the worst trading quarter in its core fixed-income business in more than a decade. The New York-based firm's focus on hedge funds meant that its revenue in Asia trailed that of corporate-focused universal banks such as Citigroup Inc. and JPMorgan Chase & Co. in the first half. Deutsche Bank AG, which posted a 36 percent slump in third-quarter revenue from fixed-income, currencies and commodities trading, has also been trying to shift the focus of its investment banking business toward corporate clients. Unlike institutions, these trade even when markets are placid.
While American private wealth clients are putting less of their portfolios in cash, companies are another matter, especially in Asia. The region's publicly traded firms are sitting on a record $1.1 trillion, according to data compiled by Bloomberg.
The total has quadrupled from $266 billion a decade ago and increased steadily even through the global financial crisis, the data show.
By contrast, hedge funds aren't doing well because volatility is so low amid an absence of market-shaking events akin to last year's Brexit vote or Donald Trump's victory in the U.S. presidential election. Tranquil markets are pressuring banks' trading businesses, whether in the key moneymaking FICC area or in equities.
To be sure, dislodging Asian firms from their current corporate banking relationships won't be easy. Companies also have less frequent and complicated trading needs than the average institutional investor. A return to more normal levels of volatility could also swing the profit pendulum back toward hedge-fund clients.
For now, though, as the world's trading powerhouses grapple with the lull in markets, Asian companies should be a bigger focus.
-With assistance from Andy Mukherjee.
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Matthew Brooker at email@example.com