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#MoneyBeat Goldman CEO on the Return of Volatility: ‘Not Whether, But When’

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NocRoom    0

Goldman Sachs Group Inc. CEO Lloyd Blankfein said it’s a question of “not whether, but when” volatility will return in full swing to the financial markets. That would be welcome news to his firm’s traders, who have struggled lately.

“Central banks around the world have been buying everything in sight, which is a blanket on volatility,” Mr. Blankfein said at an industry conference Tuesday. “That is stopping and is going to reverse.”

Indeed, the first signs of that emerged in recent weeks as a sell-off in stock markets caused measures of volatility to soar. If this persists, ​it should ​rev up trading​ activity as investors place bets to profit on price swings​.

That’s good news for Goldman and other trading houses. Oil and long-term bonds, for example, ​this year have ​busted out of tight price ranges. The dollar fell​, and stocks swung wildly. ​

Revenue ​in some parts of Goldman’s trading division ​is more than 50% higher than last year, according to people familiar with the matter.

“I would love to extrapolate off the beginning the year,” Mr. Blankfein said Tuesday. “There are some things that look different [from 2017]…Prices that have been locked in a range for a very long time have broken through.”

That said, Mr. Blankfein has been burned before predicting a spike in activity. In early 2017, the firm ​bet on a “reflation” ​trade — a stronger dollar and higher long-term rates​​ — that fizzled. ​It was stuck with an inventory of securities that nobody wanted.

That set up ​Goldman’s worst fixed-income trading ​year since 2008. Revenues​ in 2017 fell 30% ​from a year before, to $5.3 billion, steeper than declines at rivals.

Goldman ​is targeting $1 billion in ​additional fixed-income​ revenues by 2020 and ​aims to be a top-three trading partner for big clients. It is ​courting long-term asset managers and corporate clients, which tend to keep trading at steadier clips than washout-prone hedge funds.

The effort is bearing fruit, Mr. Blankfein said. Across 21 ​​​measures of market share, 18 have ​increased over the past year, he said without naming them. A joint venture between Goldman’s investment bankers and its traders to help companies manage commodities risk has won 16 mandates​ from new clients since the fall, he said.

And ​the return of market volatility is helping: Goldman’s strategy is “not dependent on the environment improving, though it is, and I’m happy about it,” Mr. Blankfein said.

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