Blankfein’s caution proves risk-off banking is here to stay

Elizabeth Fournier
FOR a brief hour or so yesterday, the banking world was gripped by a success story.

Goldman Sachs, which this time last year posted close to half a billion dollars in losses, threw its hat into a largely upbeat round of US results by almost doubling overall revenues and sending shares up in early trading.

But no sooner had Goldman’s Blankfein dropped a $1.46bn profit on the market – not to mention a four cents per share dividend rise – than Citigroup chief executive Vikram Pandit had stolen his thunder with a carefully penned letter of resignation.

In doing so, he left Blankfein with the dubious honour of being just one of two remaining Wall St bank bosses hired during or shortly before the crisis who’ve survived this far (Jamie Dimon at JP Morgan being the other). Blankfein’s memorable quotes (who can forget “I’m doing God’s work” and “I know I could slit my wrists and people would cheer”) and bullish investment attitude ensure that when he does step down from Goldman, his legacy will at least be colourful.

Pandit, on the other hand, will be remembered for the sweeping job cuts and government pandering that came after Citi accepted a $45bn bailout, not to mention a 90 per cent depreciation in the bank’s share price over his five years at the top.

It’s unfair to put all that on the departing chief executive, of course – poor Pandit was drafted into his very own omnishambles back in 2007, and though paying back loans and making cuts might not be glamorous, he’s ensured Citi has hung on as America’s number three ever since.

His method foreshadows the new breed of risk averse, technocratic bank bosses popping up all over the sector – most recently, some would argue, in the form of Antony Jenkins at Barclays. Even Pandit’s successor, Mike Corbat, is seen as a safe pair of hands.

And as the focus banking sector seems to shift more firmly towards fostering a responsible business culture, perhaps even Blankfein has tempered his enthusiasm for a risk-on ride.

Despite investment banking revenues that jumped 49 per cent to $1.16bn and an investment and lending desk that generated $1.8bn in the third quarter, Blankfein’s outlook on the next few months was about as cautious as he has ever sounded. Far from blowing his own trumpet, Blankfein called the results “generally solid in the context of a still challenging economic environment” and warned that the bank would “continue to be disciplined in managing our operations and capital”.

Goldman has already been making cuts – headcount is down five per cent on a year ago and the bank’s peripheral spend on areas including comms and business development has been stemmed. There could be more to come. In the meantime the bank’s average daily value at risk – the amount of money the investment bank could lose in a day – fell to $81m, the lowest level in roughly six years.

In the wake of yesterday’s big news, the BBA today holds its annual conference, at which the City’s banking bigwigs will again line up to tout just how risk averse, cost conscious and keen on regulation they all are. If there was ever a sign that a “new normal” world order is here to stay, then Blankfein jumping on board would be it.

Elizabeth Fournier is City A.M.’s news editor