NEW YORK (Reuters) - Goldman Sachs Group Inc's GS.N trading division was caught "wrongfooted" last year, bracing for a return of volatility that did not materialize in financial markets, Chief Executive Officer Lloyd Blankfein said on Tuesday.

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The trading division was also overdependent on a certain type of customer that became less active, Blankfein said. Goldman has traditionally relied on hedge funds and other active managers that have been struggling.

“I would say, we, last year, braced for a return of volatility and it didn’t come out,” Blankfein said at an industry conference in Miami Beach. This and the lack of activity from customers caught Goldman in a “double whammy,” he said, and the bank is making adjustments.

The outlook for trading has improved due to factors including a recent rally in oil prices LCOc1 and a break out in 10-year bonds, he said. He acknowledged that the trading business has experienced "secular" problems, a change from what senior Goldman executives typically characterize as a "cyclical" downturn.

Blankfein gave an update on the Wall Street bank’s ambitious $5 billion revenue plan that was met with skepticism when it was unveiled in September. Investors were keen to hear updates on Goldman’s ailing bond trading unit.

As part of its growth plans, the bank has set up a joint venture between its market-making and investment banking teams to provide better financing and hedging services. He said this has resulted in 16 new commodity-related transactions already.

Goldman is also seeking to work more with large asset managers, banks and corporate clients to broaden its coverage. It was the first time Blankfein himself gave investors a formal, public presentation about Goldman’s goals. Since his deputies first laid out the revenue-growth strategy in September, analysts have questioned the underlying assumptions and cited investor concerns. In October, Instinet analyst Steven Chubak told Goldman’s finance chief that clients wanted to know why the bank thinks it can boost investment management revenue by $1 billion, given the challenges money managers face. In a recent report, Evercore ISI analyst Glenn Schorr said shareholders remained “skeptical” about consumer lending and other components of Goldman’s revenue growth plan, despite assurances from senior executives.

The consensus among Wall Street analysts is that Goldman will not achieve much of its $5 billion goal, which does not factor in improving market conditions, Wells Fargo analyst Mike Mayo said in an interview. The return of volatility should nonetheless help Goldman generate more income from trading, he said. “This is the environment that Goldman has been waiting for all decade,” said Mayo, who expects the bank to achieve $3 billion of its $5 billion target.

“If Goldman doesn’t get it right in 2018, then management has some serious questions to ask.” Trading had been a profit engine for Goldman Sachs for the decade leading into the 2007-2009 financial crisis. Those profits dried up due to lethargic markets, new regulations and tougher competition.

To offset those changes, Goldman is looking to grow other businesses, including investment management, investment banking and consumer lending.

Goldman aims to cover 1,000 more clients in investment banking by 2020, according to Blankfein’s presentation. The bank plans to expand its consumer business beyond its recent loan-and-deposit push into other areas like wealth management and retirement products over the long term, he said.

Goldman’s stock was trading down by about 0.5 percent in the morning.