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Goldman Sachs has reined in risk-taking due to market volatility triggered by Donald Trump’s trade war and fears that rising US debt will erode investor appetite for dollar-denominated assets, a senior bank executive has said.
John Waldron, president and chief operating officer of the bank, told a Goldman podcast released on Thursday that the investment bank had “moderated our risk positioning” since the US president announced an across-the-board tariff increase on its trading partners on April 2, adding, “that’s a sensible thing for us to do”.
The reduction in risk-taking by one of the world’s most influential financial institutions underlines how Wall Street traders have been unnerved by the shockwaves that ripped through markets after Trump unleashed his trade war. Volatility has since subsided and most of the rises have been paused but could soon be reinstated.
Waldron said the bank’s reduced risk appetite would be felt most in capital markets and client trading facilitation. “Where we can, we pare our risk and stay a little bit closer to home,” said Waldron, second-in-command at Goldman and viewed by some as heir apparent to chief executive David Solomon.
Waldron said Goldman would “husband our liquidity a bit more, run a little bit more buffer.” He added it would “just be a little bit more, kind of two-footed about it, not overly front-footed about it.”
In a separate interview with the Financial Times, Waldron elaborated that he was not expecting a serious economic downturn. “I don’t see a recession. We are expecting ‘slowflation’, 1 to 1.5 per cent growth, and 3 per cent inflation,” he said. “I don’t think that’s stagflation. It’s less pernicious” than the period of high inflation and stagnation that hit the US in the 1970s.
Goldman and other Wall Street banks benefited from a sharp increase in equity and debt trading revenue in the first quarter of this year after Trump’s threat to impose high tariffs on many countries caused markets to gyrate.
However, heightened uncertainty over US trade policy and its economic and financial impact has caused companies to put investments and acquisitions on hold, lowering investment bank fee revenue from merger advice and equity issuance.
Waldron said on the podcast that the bank was positioning itself for “continued uncertainty and what that may deliver, in the coming weeks and months”.
There were signs of companies becoming a little more confident, Waldron said, pointing to a pick-up in US initial public offerings in recent weeks. “I think we’re seeing companies start to step out a little bit more and be willing to do some more things.”
Waldron joined other Wall Street titans, including JPMorgan chief executive Jamie Dimon and BlackRock CEO Larry Fink, in sounding the alarm about the prospects of higher deficit spending and the risk of a resulting sell-off in US government bonds.
“It seems to us an imperative to get the deficits down,” he said.
“The deficits are getting pretty large, and I would say unsustainable if you’re going to try to run at this pace for the foreseeable future,” he said, adding: “I do think the bond market is concerned about it.”
Asked if investors were pulling money out of US assets in response to the worries over tariffs and deficits, Waldron said Goldman’s clients were looking to have “a little less overallocation” to US assets and to hedge exposure to the dollar.
“If you actually look at the fundamental asset allocation, I think it’s a marginal change in behaviour. I don’t think it’s more than that. I do think the more disruptive the policy is for longer, the more likely you’re going to see a more pronounced move.”
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