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Trading revenues tanked, and profits fell by more than 50%.
It is not surprising then that the earnings calls were dominated by questions about falling profitability, and in particular prospects for the fixed income, currencies and commodities business.
But buried in the conversations were questions about how trading would be done in the future.
Guy Moszkowski, head of research of Autonomous Research US, asked Harvey Schwartz, CFO at Goldman, and Jon Pruzan, his counterpart at Morgan Stanley about the electronification of fixed income.
To recap, fixed income trading has historically been conducted over the phone, but there have been recent efforts to have more trading executed on electronic platforms. The hope is that that kind of trading could help source liquidity, and also reduce some of the costs associated with having humans broker bond deals over the phone.
Pruzan at Morgan Stanley sounds a lot more bullish on the pace and extent of this change than Schwartz.
Here is Pruzan (emphasis ours):
In contrast, Schwartz seems more circumspect. He said (emphasis ours):
Business Insider reached out to Moszkowski to get his take on the differences in tone. Here is what he had to say:
I doubt that their approaches are very different despite the difference in tone. I think GS was just trying to be realistic about the fact that it isn't going to happen overnight and that areas like credit are going to remain much more voice-driven/bespoke than the more standardized assets. That said, something has to give. Firms may not like to acknowledge that a tipping point has been reached, but I think it has. The FICC model is utterly broken as a result of the capital standards (high risk-weighted capital and SLRs) and the Volcker rules.