Goldman’s Cohn Says Inactive Trading Environment Is Abnormal

Goldman Sachs Group Inc. President Gary Cohn said low volatility and interest rates that are holding in tight ranges have resulted in an “abnormal” trading market.

“The environment for all the firms is quite difficult right now,” Cohn, 53, said today at an investor conference in New York. “What drives activity in our business is volatility. If markets never move or don’t move, our clients really don’t need to transact.”

Citigroup Inc. Chief Financial Officer John Gerspach, 60, said yesterday that second-quarter trading revenue could fall as much as 25 percent from year-earlier levels, and JPMorgan Chase & Co. estimated a 20 percent drop earlier this month. Cohn stopped short of forecasting the decline for New York-based Goldman Sachs.

“We think, at the end of the day, it’s economic in nature,” Cohn said of the cause of lower client volume. “We don’t have clear vision of economic growth or lack of growth.”

Cohn said while his firm has been gaining market share among clients in the trading business, the lack of activity has kept that from translating into higher revenue.

Low interest rates and the Federal Reserve’s program of quantitative easing have resulted in reduced volatility, Cohn said. He pointed to the Chicago Board Options Exchange Volatility Index, a gauge of U.S. stock volatility known as the VIX, which is trading 40 percent below its historical average. The yield on the 10-year Treasury note traded over the past three months in its narrowest band in the 35 years, Cohn said.

Goldman Sachs has responded to years of declining fixed-income trading revenue by cutting jobs and capital in the business, Cohn said. The number of employees is down 10 percent from 2010 and risk-weighted assets have declined by $90 billion since the second quarter of 2012, he said.

“We’re not just waiting for things to get better,” Cohn said.

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