January 28, 2023

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Goldman missed earnings estimates as deal-making declined and the consumer business took a hit

Jan 17 (Reuters) – Goldman Sachs Group (GS.N) The company on Tuesday reported a larger-than-expected 69% drop in its fourth-quarter profit, as it grappled with a decline in deal-making, a drop in asset and wealth management revenue and posted losses in its consumer business.

Wall Street banks are making deep workforce cuts and streamlining their operations as deal-making activity, their main source of revenue, grinds to a halt over concerns about a weak global economy and rising interest rates.

Goldman is also curtailing its retail banking ambitions as CEO David Solomon refocuses the bank’s resources on strengthening its core businesses such as investment banking and trading.

Solomon confirmed that the bank was cutting 6% of its headcount, or about 3,200 jobs, and making changes to its consumer business to navigate an uncertain outlook for 2023.

“We tried to do too much too quickly,” he said of consumer businesses such as Marcus’ consumer-oriented unit. “We didn’t execute perfectly on some so we took a good look at those, and I made adjustments.”

Goldman Sachs reported a net loss of $660 million in its Platform Solutions unit, which includes its transaction banking, credit card and fintech businesses, as provisions for credit losses grew as the business expanded.

The bank said its full-year net loss for the platform solutions business was $1.67 billion, although net revenue of $1.50 billion for 2022 was 135% over 2021.

Goldman confirmed on Tuesday that it plans to stop making unsecured consumer loans after it moved Marcus to its asset and wealth management arm. The launch of Marcus’ current account has also been delayed.

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Goldman’s investment banking fees fell 48% in the most recent quarter, while revenue from its asset and wealth management unit fell 27% due to lower revenue from equity and debt investments.

Solomon said investment bankers’ forecasts could be better in the “back half” of 2023, as people soften their views on the economic outlook for this year.

Shares fell nearly 7% to $347.66 at midday.

Reuters Graphics Reuters

increasing costs

Wall Street’s biggest banks stockpiled more money for rainy days to prepare for a possible recession, while showing caution about forecasting income growth in an uncertain economy and with increased competition for deposits.

Goldman’s total operating expenses rose 11% to $8.1 billion in the first quarter. A source told Reuters last week that the bank would lay off 3,000 employees in an effort to curb costs.

Goldman’s chief financial officer, Dennis Coleman, said the severance fee will be adjusted in 2023.

The bank reported a profit of $1.19 billion, or $3.32 per share, for the three months ended Dec. 31, below Street’s estimate of $5.48, according to Refinitiv IBES data.

“Goldman Sachs’ Q4 results were expected to be very bad, even more miserable than expected,” said Octavio Marenzi, CEO of Ubimas Advisory.

“The real problem lies in the fact that operating expenses rose by 11% while revenues fell. This strongly points to further cost cutting and layoffs,” he added.

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Goldman’s business has been a bright spot as it has benefited from increased market volatility, driven by the Federal Reserve’s quantitative tightening.

Fixed income, currency and commodities trading revenue increased by 44% while equity trading revenue decreased by 5%.

Overall net revenue decreased 16% to $10.6 billion.

Additional reporting by Nikit Nishant and Noor Zainab Hussain in Bengaluru and Saeed Azhar in New York; Additional reporting by Bansari Mayur Kamdar. Editing by Anil D’Silva and Mark Porter

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