Struggles to stay relevant

JUST outside Stanford University’s campus sits the headquarters of Symphony, one of the myriad tech companies that sprout like weeds in Silicon Valley. After a lunch break exercising in a nearby park, a dozen fit-looking employees, still in workout clothes, help themselves from buckets of fruit, energy bars and the food of the day (Indian), before plopping themselves in front of monitors in an airy room bathed in natural light. For the sought-after engineers making up most of the company’s 200-strong workforce, this sort of environment is the norm. Work is supposed to be healthy and relaxed—a far cry from the terrors of a New York bank with its incessant pressure to sell and complex internal politics, not to mention often unappetising, pricey food.

Across the continent, in a newly opened tower within the World Trade Centre, Kensho, a three-year-old company, has a similar feel. Like Symphony but a bit smaller, it is stuffed with talented engineers. In a New York approximation of the West Coast, it boasts “vertical gardens”—rectangular patches of vegetation like framed paintings—and a pool table.

Symphony is a messaging platform, owned by a consortium of investment firms. It offers a critical function at present almost monopolised by Bloomberg: the seamless incorporation of data and communication that makes the terminal the most important conduit in finance since Wall Street went from thoroughfare to metaphor. Kensho screens vast amounts of information—speeches, earnings, earthquakes and on and on—to help investors find correlations among all these data that might move prices.

If the two companies succeed—a big if—their products could become pervasive. They are tiny entities with vast potential. And they are examples of technology firms backed and used by Goldman Sachs, a big investment bank, in its efforts to transform itself, and indeed its industry, at a time when its core business is being pummelled by technology and regulation.

In 2014 Goldman spun out a messaging technology developed internally as a new company, Symphony. Kensho was formed with backing from Goldman in 2013. Early on, the investment bank had a contractual right to be the sole user of its products among brokers. Goldman continues to be the only outside investor with voting rights on the company’s board, but many other banks have taken stakes in it and are customers.

It is possible that these two companies will provide little benefit to Goldman. Cynics are entitled to wonder whether these and similar efforts are merely a way of putting a modern veneer on an old structure. Tech companies are fashionable and widely perceived as helpful; banks are unfashionable and seen as parasitic. The non-cynical take is that Goldman understands that answers to the challenges it faces will have to come, at least in part, from outside its mirrored-glass headquarters in downtown Manhattan. It may have many flaws; a failure to grasp corporate vulnerability is not among them.

Goldman, with its enormous influence, lavish compensation and alumni network in pivotal political roles looks anything but embattled. But the firm—derisively dubbed a “great vampire squid” by Rolling Stone magazine—is in the process of seeing its tentacles severed.

Lost prop

Since 2009 revenues have dropped by a quarter; they remain below where they stood a decade ago (see chart). Even in a good quarter, such as the one just completed, its return on equity barely exceeds single digits. “Principal transactions”, ie, proprietary trading and investments, produced $25bn in revenues in 2009 and $18bn in 2010 but only $5bn in 2015. The decline is a result of new rules that limit these activities—and regulators threaten more.

Fixed income, commodities and currency (FICC), the once immensely lucrative niche that nurtured the careers of Goldman’s chief executive, Lloyd Blankfein, and its president, Gary Cohn, has also been hit hard. Revenues reached $22bn in 2009. In the first three quarters of this year they totalled $5.6bn.