NEW YORK (Reuters) - Goldman Sachs Group Inc will not change its strategy because it changed into a bank holding company, Goldman Chief Executive Lloyd Blankfein said at an investor conference on Tuesday.
Goldman shares have tumbled in recent weeks amid concern its profit potential would plunge because of stricter Federal Reserve regulation. Yet in his first public comments since becoming a bank in September, Blankfein insisted the firm’s strategy or appetite for risk would not change.
“Some of the biggest opportunities this firm has had came from times of stress,” he said at a Merrill Lynch investor conference in New York. “We are not forsaking our position as an adviser, financier and investor.”
Blankfein, who has led the largest U.S. investment banking firm since 2006, also argued that its profitability, as measured by return on equity, would not be crimped by lower levels of balance sheet leverage.
Returns are also driven by the profit margins on trades and financing, he said, as well as by activity levels.
Blankfein observed that some of the firm’s biggest investment windfalls were made during market slumps, such as principal investment in Asia after the 1998 debt crisis and in energy plants after Enron collapsed in 2001.
“We won’t be stubborn, but we also won’t be rash,” he said.
Looking ahead, Blankfein said a firm that has raised $55 billion for investment funds -- including a $20 billion private equity fund, a $16 billion mezzanine finance fund and a $10.5 billion senior debt fund -- during the past two years plans to invest in new distressed opportunities.
“We can participate right now,” he said.
Blankfein acknowledged that economic and market conditions remain very challenging. After initial downturns in mortgages and corporate loans, Blankfein said the next source of losses will come from consumer credit.
Goldman, he continued, also has plenty of capital. The day after it became a bank, the Federal Reserve deemed it “well capitalized.”
In the following two weeks, Goldman raised $21 billion of new capital from Berkshire Hathaway, a public stock offering and from the U.S. Treasury.
Being a bank and attracting stable pools of deposits is attractive, as a source of funding, but Blankfein stressed that capital markets business still must be funded from wholesale sources.
For the most part, consumer deposits can be used to fund consumer banking, a business Goldman is not pursuing.
Blankfein played down suggestions that it needed to merge with a bigger bank, recently the subject of market speculation, though he did not rule it out. Goldman intends to maintain its “culture,” he said.
“If that could be retained within the bigger mother ship,” Goldman would have to consider it, “but it tends not to happen that way over time,” he said.
Editing by Bernard Orr