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Pro Analysis

Breakingviews: Goldman fintech revolution can’t come fast enough

Goldman Sachs
Brendan McDermid | Reuters

Goldman Sachs' internal technology revolution cannot come soon enough. The $90 billion Wall Street firm's young online retail-banking unit is growing and could, once big enough, crank out far higher returns than the investment bank. Goldman could do with some of that extra juice already.

At 11.4 percent, Goldman's annualized return on equity for the quarter places it in the upper echelons of the industry, along with the likes of JPMorgan and Wells Fargo. The trouble is, the ROE depended upon a low tax rate, which followed from a new accounting rule relating to the settlement of share awards. Without that benefit, Goldman's return for the quarter would have been just 8.9 percent – below the rule-of-thumb 10 percent needed to cover the cost of capital.
Disappointing fixed-income, currency and commodities trading was a big part of the problem.

The division's revenue was effectively flat relative to a poor first quarter for the industry last year. Rival traders at Bank of America, Citigroup and JPMorgan boosted their top lines by almost a fifth year-on-year. They also managed a slight boost in equities-trading revenue while Goldman's fell 6 percent. That raises further questions about Chief Executive Lloyd Blankfein's contention that the firm can win market share as others cut back.