Goldman Sachs results hit by trading and dealmaking slowdown

Goldman Sachs on Tuesday reported an 18 per cent year-on-year drop in net income for the first quarter, weighed down by a slowdown in deal-making and underperformance in its trading business.

The drop in profits comes after what chief executive David Solomon had described as a “disappointing” end to 2022, which prompted the bank to undertake a major cost-cutting drive that included more than 3,000 job cuts.

Mr Solomon also told analysts that Goldman was initiating a sale of the GreenSky business, which the bank agreed to acquire in 2021 for $2.2 billion (€2 billion). The acquisition was part of Goldman’s expansion into consumer banking, a business which it is now looking to scale back.

In earnings for the first three months of the year, Goldman said net income was $3.2 billion, or $8.79 per share, down from $3.8 billion, or $10.76 per share, in the same period last year. This still beat analysts’ estimates of $3.06 billion, or $8.23 per share, according to consensus data compiled by Bloomberg.

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But revenues were down 5 per cent at $12.2 billion, missing forecasts of $12.8 billion. Goldman lost $470 million from a partial sale of its consumer loan portfolio at its Marcus business as well as the remainder of the portfolio being made available for sale, resulting in the assets being marked down.

This was offset in the bank’s profits by a $440 million release of credit reserves set aside to cover for potential loan losses.

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Goldman’s trading business, which has benefited from volatile financial markets during the pandemic, aggressive rate rises by central banks and Russia’s war in Ukraine, reported revenue of $6.9 billion for the first three months of the year, short of analysts’ forecast for $7 billion.

The miss was due to Goldman’s fixed income, currencies and commodities trading reporting revenues of $3.9 billion, falling short of expectations of $4.2 billion and lagging behind JPMorgan Chase and Citigroup which reported increases in fixed income trading revenues. Goldman’s revenue from equities totalled $3 billion, beating analysts’ forecasts of $2.8 billion.

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In March, the Goldman trading desk that handles interest-rate products lost about $200 million in the market upheaval following the collapse of Silicon Valley Bank, the Financial Times reported.

Revenue from investment banking at Goldman in the first quarter was down 26 per cent to $1.58 billion, ahead of analysts’ estimates of $1.47 billion. JPMorgan and Citi last week reported declines of 24 per cent and 25 per cent in investment banking revenue respectively.

Goldman’s operating expenses, a key focus following the bank’s spending review earlier this year, were up 9 per cent at $8.4 billion, higher than analysts’ estimates for about $8.1 billion.

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Goldman’s shares were down about 2.8 per cent in early trading in New York.

The bank’s asset and wealth management division, which is the cornerstone of Solomon’s efforts to diversify Goldman’s revenue mix away from trading and investment banking, reported revenue of $3.2 billion. This was up 24 per cent from the same period last year but missed analysts’ estimates of $3.8 billion.

Goldman’s new “Platform Solutions” division, which houses part of its pared-back consumer banking business, reported a pretax loss of $306 million after losing almost $2 billion in 2022. Revenue at the division more than doubled in the first quarter to $564 billion, ahead of analysts’ estimates for $529.9 million.

Goldman has said it is exploring “strategic alternatives” for the Platform Solutions division, which includes GreenSky. – Copyright The Financial Times Limited 2023