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November 21, 2012

Goldman Sachs to be Wall Street's Wal-Mart



Goldman Sachs, an American multinational investment banking firm, engaged in securities and other financial services, is slowly turning into the Wal-Mart of Wall Street.

Goldman Sach’s chairman and chief executive officer, Lloyd Blankfein, told investors the firm was adapting to the latest technologies and was increasingly focused on being the "low-cost provider.” It was now focusing on operational efficiency to maintain profit growth.

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"We are much more focused today on operations and technology and being a low-cost provider than we would have articulated about ourselves 10 or 15 years ago," Blankfein said during a question-and-answer session at the Bank of America Merrill Lynch Banking and Financial Services conference, at The Plaza Hotel in New York.

The technology, according to Blankfein, has streamlined trading and has eliminated profit margins for everyone in the market, but firms like Goldman can make up for that loss of margin by getting more market share. About 60 to 70 percent of equity trading is done electronically. Fixed incomes with 25 to 80 percent of bonds, and 5 to 60 percent of derivatives are being traded electronically as well.

According to Blankfein, Goldman will slowly push more of its trading to electronic markets over time.

"It's our aspiration, and we have achieved it to some extent, to be the low-cost provider of these kinds of services," he added.

Dwindling trading opportunities and a lackluster deals market have been a cause of concern for a while. The prevailing market situation has forced Wall Street to improvise, cut costs and seek new avenues for business. Wall Street has been exiting unprofitable ways and businesses. Goldman’s competitor UBS AG (UBS, UBSN.VX) recently announced it was shutting off its fixed-income operation and would be eliminating about 10,000 jobs to cope up with the changing scenario.

Amid sluggish revenue, Goldman is also re-strategizing and taking up the knife. It’s looking at an 8-percent reduction in headcount since mid-2011, since it is aiming for $1.9 billion of expense savings by the end of 2012. Goldman is trying to find answers by investing in technology, and has increased its hiring in technology by 6 percent since 2009. Goldman has slowly shifted jobs away from its high-cost New York-based regional headquarters to Dallas, Salt Lake City and Bangalore.

About one-fifth of Goldman Sachs’ 32,600 employees work out of ‘High Value’ locations, up from 10 percent in year 2007.

The trading firms in wall-street are readying themselves for the shift to central clearing for over-the-counter derivatives. It is considered the next frontier of e-trading.

Answering a question, Blankfein sounded upbeat about the transition and was of the opinion that Automation "resulted in more concentration, higher volumes and actually more revenue and, more importantly, more earnings for the winners of the concentration sweepstakes."

"I am optimistic that we'll find our place in that," he said.

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Edited by Braden Becker
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