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Markets Update: A “Gritty” Second Quarter

2020-07-17

Jim Esposito, global co-head of Goldman Sachs’ Global Markets Division, recaps a “gritty” second quarter, the importance of technological resilience, and the ongoing commitment to client centricity. 

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
Welcome to our exchanges of Goldman Sachs Markets, update from trotted July seventeenth each week, rejecting the leaders across the firm get a quick taken, but they're watching markets objects. had gone ahead of corporate communication sneered the firm and my Today's Jim Esposito, Global CO head our global markets? Division tumult but the once in a lifetime quarter that just wrapped up historic by any measure. the way the trading and client relationships have changed since the pandemic began. And what he's focused on next June. Welcome to the programme. Thanks for having me Jake, I hope your keeping safe and seen as best I can, what start picture, with how you'd characterize the second quarter, we had a serious financial crisis. The began late in the first quarter of dramatic switch to remote trading for your business and a lot of volatility as you back on a quarter. How do you think I remember what happened it? Jake I've been
the firm now for a large number of years, and so it had a front row see too numerous no difficult. and challenging periods for global markets and when I think about the arc of my career across these challenging periods, while there are some similarities, each one of these is unique and very different in terms of what characterizes a volatile market. Posed in many ways. You know, while history doesn't repeat it, in times does rime, and so, when I think about this period. For me, this quarter was about Goldman Sachs demonstrating a lot of grit. It was a very pretty performance and ass. True for people. What is all So true, when I think about our technology resilience when I think about putting up one of our stronger quarters in the past ten years and a layer that, on top of the fact that ninety eight percent of trade, Slower employees were work, from home
told me we were able to do that before we actually did. I wouldn't, blade you, when I would have taken the other side of that bats. Now this cuban period been challenging. It's been draining and exhausting for our people know the globe. Economy, pretty much shut down overnight, and so that created a tremendous amount of stress and strain on our clients and our people showed up really were front foot it in terms of being in front of clients, as you said, the economy shut down overnight, but the markets never shot, and so what we saw was markets, you best sort of be price the future and that it involves a lot of volatility deserves a lot of uncertainty. The still a lot of uncertainty, you're helping its navigate through that in a very different environment. How those relationships with climate change that period strengthen weekend, and we talk a lot about planets electricity here had a bad luck for independent energy
Those things we set at our January investor day was the material investment were making our client franchise and, to your point really reinforcing a lot of clients. Intrepidity, that's true firm wide presuppose nowhere was that more needed were more acute. then the business and I'm responsible for in global markets. We ve been at this now for about two years and were pleased to report. When we look at our client rankings, and our share of the overall client wallet. It has steadily increasing for the past two years, really accelerated in the first half of this year, and I think reason, for that is no one thing go bump into night: clients and to turn the Goldman Sachs with a greater frequency, and so when markets get difficult when liquidity is upwards source: those are the sorts of phone calls that we get with the greater frequency and this period
in and around covered with the stresses and strains in the capital markets. There was an increase incline activity They were more challenging markets to navigate and that's over Goldman Sachs Type market, so the citizen. Bastardy were chosen a lifetime bigger what was really just in January. You laid out tomorrow. We target for your division, you want acceded them. I think you ve already double bomb pretty much. How do you think about the business going for what are the chances to add on from year? What to go from strain? the strength or are these returns sustainable as we hopefully get back to a slightly more normal alarm. He lets first level set where we ve been and where we are now no longer year was characterized with the division. Putting up no call it. High single digit returns January. We laid out a three year business plan where we discuss getting to above an eleven percent return, tangible equity and, in the first hand of the sheer recurrently
exceeding twenty percent so were well well exceeding what was a three year business plan, and I think it really demonstrates the operating leverage that we have in this business now. For me, the big aha moment in our investor day plan was the fact that we re committed to these businesses. We didn't about retrenching. We didn't talk about shrinking in global markets. We committed to being global, broad and deep, the rest we did. That is we think, that's what our clients want from Goldman Sachs and the other reason we did that when we look at where we are right now the operating leverage in this business. We knew was slightly more client revenues. This business would well exceed its cost of capital and that's exactly What happened in this quarter? Ok volumes, picked up, went by
activity increases. It offers spreads tender wide now, a little bits and all of that, to the bottom line? It's not as if we had to go out and hire a bunch more salespeople traders, engineers are technologists. We were able to handle the increase. Client flow with the team we had on the field. I think that speaks operating leverage, and you saw that nor returns this border Technology is a key part of the story. You mention that in the second quarter and are covered with remote work. What are the biggest learning to come out of this? How do you think my change, the trading for the future, and how do you think about how we invest in technology going forward, look I'd, say with each passing year, a Goldman Sachs. I have a greater appreciation greater reliance on just how important great technologists and the engineers are to our success and when I think about the pit we made, and it was an incredibly fast, an efficient headed to read create the ecosystem. That is a trading floor
and recreating that environment. With ninety eight percent of our people working from home, we couldn't Have done that as well as we did, what we d never world class set of technologists engineers- and they did your job phenomenally well during, a period in March when we were really dealing with the height. while agility and elevated fine volumes first thing I did every day is I wake up for logging in I'd say a prayer that or risk management systems and our execution trading systems with clients working to operate efficiently. because I didn't have faith, but because with just such a new environment. The scale of what we have accomplished using technology was unheard of and there technology and engineers they held up incredibly well and they really provided us with a very robust technology, stack now great technologists anymore
most of our engineering group goes beyond just the text: states that were running on a day in and day out basis, not call out to earth three other areas of importance. The first is the investment that were making in our Marquis platform mark. He is, local markets divisions, digital storefront, it's the Eagles system that we want our clients to live in consume everything that they need and want to take out of Goldman Sachs would include content there is research, content or sales trading color, it would include risk analytics. It would include data sources, execution, services and, of course, ultimately, click to trade. With Goldman Sachs more tea, is ecosystem and what we found during this period. Our clients
were, engage with it more than ever before, and so of course, it wasn't only Goldman Sachs that was working from home. The entirety of our client franchise was doing the same, and the efficiency of that ecosystem became incredibly important during this period, and I really liked the growth prospects. that I saw with more tee. No, during the stresses and strains that we saw in the capital markets, There's a bunch of other platforms that were also focused on were making a big investment. If I think about the largest client gap that we In addition, it with better service, saying systematic, wanted eight of funds in the equity addition, and so we have a reasonably size gap that we're looking too close to better service and support systematic funds and the number one way we're going to do that is by having a world class execution tax stack
are, you have to have one that's robust globally, to connect to a bunch of individual markets, including in the emerging markets globally, and were currently in the process of reinforcing and really Rebuilding the entirety of that text stack that we hope systematic clients will find valuable and Millie will lead to deeper relationships with those clients if we get it right with the matter. Clients will also be able to migrate that stack and you it more prominently across entirety of our equity, global franchise, and so when I my role now, atop the division in terms of managing our operations, note knowledge II, the robustness of it, how clients engage with us. It's not only of mind, it's literally one of the most important things that I do on a daily basis. So beyond
a key do see other areas for roads, I beseech you could grow the digital footprint and better interaction, the clients for your division. Here we have a large number of strategic growth initiatives across both equities and fixed income. No one of the things we ve been talking a lot about is growing our financing revenues and its true inequities, but its equally true in fixed income, but when I think about the single biggest opportunity for us it's this continue. Investment in clients infinity, putting clients your frightened centre in everything we do and progress were making. I think the Good NEWS is were seeing material progress, but equally think there's a lot more client while at share at we
gain in the coming years, and so we ve been busy closing pliant gaps wherever they exist of were by no means exhausted. With that effort, when we look at things like the top hundred clients globally and where we rank in the top three with those top one hundred clients again were making progress, but I'd say sufficient runway in front of us that if we keep executing wirelessly in terms of our Klein engagement, client franchise. I think we can still demonstrate very, very significant growth in our global markets, division, so german looks like you, ve been back in the office a bit. What does it felt like and how do you feel about socially distance trading swore how's that gonna work you I've been back now
for a couple of weeks and when I reflect on this period and when I know talk to a bunch of clients, a bunch of Goldman Sachs professionals, you really struck by you just how personal this period has been for everyone and never once got a different set of circumstances and experiences and covert has impacted no p globally and a very, very different way, and I can say on a personal level, I was workin for home for a couple of months and it was just really a night period in a sense of you know. It was a period where I think I formed a deeper family bound. I have three teenage boys, too right boarding school. They came back to do on schooling, and it was really fantastic time to spend time with the family. I was working from home, they doing com, schooling and those connections were something that would not happened. easily, and so it was a special special time now that I'm back in the office. We are
getting up and running here in London. We have about twenty five percent of our treaty floor employees back in the office. We are functioning, I think, in a very efficient manner. Now we are running a socially distance trading floor which does have its unique challenges, but the thing We believe in a common sacks I'd say, is either a couple of reasons why, over time we are going to make a bigger pivot and how people come back to the office the first is no are intake. Universities is quite significant. No it's incredibly important. It's really the life blood of organization to take in no really quality, Junior people and train them up, and so think about running our trading businesses. We need to train the next generation of trader sales person, engineer and strategist, and to do that, I think we have to come together in a very apprentice based model, that is, harder to do. Virtually than it is physically another,
we're getting into the time of year where people are coming in a government to start their careers were very focused on how Workin get them trained up. I think it is gonna be important for us to get paid back then. Secondly, I'd say it's just around our people together when they collaborate, I think that's when innovation happens, we will be more innovative with our people working together and coming together, physically I think innovation has stalled a little bit, even though we have been operating efficiently, working from home and so on the things tat, we ve been thinking a lot about now. Look my last point around this would be. I think there are gonna, be some things from this period that we borrow and take through to be a very for an operating in business model in the future, fully believe, will be able to be more flexible with our workforce. Clearly, we demonstrated we can operate efficiently and put up solid results with people
from home, and so the idea or notion that we want a more flexible workforce, which I like to think and foster more diversity in the workplace is absent. Wheatley, something that were thinking through how much flexibility for whom, how what all work, I wouldn't say word that far along in terms of our thoughts around it, but I definitely envision a working model that will be more flexible in the future. I think of that working model is more flexible. That should help ultimately help champion, foster a more diverse work. no doubt about that. If we can get there- and I agree- it's very different for those of us who have experience and connections and networks for us to be out of the office for a little while we can draw on the experience from those people much different first What is starting up in an industry or in any industry just trying to learn that thanks for joining us today, Jim it was a pleasure. Thank you. Jake is gonna, be here. That's all for this week, markets update on exchanges of Goldman Sachs. In case you missed it together,
said: the sweet, with Steve Strong and on yes to investing in a new report. He has at not states thanks for listening and how Babylon hasn't safe and healthy. We get this Todd. Gas was recorded on Thursday by sixty two thousand twice all price references and market forecasts correspond to the date of this recording this pod cash should not be copied, distributed, published or reproduced in whole or in part. The information contained in this package does not cost research or recommendation from any Goldman Sachs Entity to the listener. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the statements or any information contained in this podcast and any law
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Transcript generated on 2021-07-02.