Goldman, Wells Fargo, Morgan Stanley see tokenization as a growth play, not a threat

Tokenization, or the process of bringing financial and real-world assets onto a blockchain, has been generating headlines in recent months, with a growing number of companies saying they’re offering, or planning to offer, versions of equities, bonds and commodities that can be traded around the clock with few, if any, geographic restrictions.

Not surprisingly, Wall Street's biggest banks are also examining the technology, and this week’s third-quarter earnings calls allowed executives the opportunity to voice a clearer picture of where they think the business is headed, though none put a revenue figure on the opportunity.

Goldman Sachs (GS), Wells Fargo (WFC) and Morgan Stanley (MS) focused on different aspects of the process: trading opportunities, money transmission and advisory services.

For Goldman Sachs, it’s all about trading. CEO David Solomon was asked whether tokenization, decentralized finance (DeFi) and prediction markets could eat into the firm's trading revenue. His answer was that they might do the opposite.

Solomon pointed to the shift toward electronic stock trading almost 50 years ago, which once raised similar concerns about the future of Wall Street's trading desks. Goldman adapted to that change and its equities business grew. Tokenization, he said, could follow a similar path.

"The developments are obviously creating more products, greater activity, potentially new clients, broader distribution channels," Solomon said on Tuesday’s call with analysts.

Tokenization, clearing and settlement

The bank has spent years investing in digital asset infrastructure, though perhaps more quietly than most of its competitors. It built GS DAP, its own platform for tokenized assets, as long ago as 2022 and has worked on tokenizing bonds, money market funds and real estate.

In July, the bank participated in a half-day run of a tokenization service from the Depository Trust & Clearing Corporation (DTCC), which handles much of the plumbing behind U.S. securities markets and processes quadrillions of dollars of transactions each year.

Goldman is now looking at ways to use that service on a larger scale, with Solomon claiming tokenization could help cut costs, automate transactions and make assets easier to trade. But he was careful about how much business it represents today.

"I'd say the activity so far is small and at the margin," he said.

Wells Fargo, meanwhile, is already processing cross-border payments using tokenized deposits, with money reaching beneficiary accounts in two minutes or less.

"This is in production, by the way, and it's small volume so far," CFO Michael Santomassimo said.

The bigger opportunity for Wells Fargo may be geographic. Unlike some of its global rivals, the bank doesn't have a large international branch network. Santomassimo said tokenized deposits could help it win more cross-border payments business without having to build that network.

The bank also sees other possible uses for the technology, including tokenized securities, real-world assets and crypto trading for wealth clients. Santomassimo did not say when those services might become available.

For Morgan Stanley, the emphasis is less on moving money and more on what happens when investors can move assets with fewer delays.

While the technology could make it faster and easier to transfer investments, that doesn't mean clients will stop needing advice, CFO Sharon Yeshaya said .

"The tokenized world means it is faster and easier to move assets around, and you will need advice," she said.

Morgan Stanley has been investing in digital capabilities across its wealth management and institutional securities businesses. Yeshaya did not announce a new product, simply identifying tokenization as another opportunity for the firm.