Goldman Sachs income slides by £2bn with investment banking bearing brunt of a drop in dealmaking
Goldman Sachs underperformed analyst estimates as a near halving in investment banking revenue and an expansion in loss provisions led to a steep drop in income.
Profit dropped to 44% in the quarter ending 31 December 2022 compared to the same period last year. Goldman’s earnings per share slumped to $3.32, down from $10.81 last year and substantially below analyst estimates of $5.25.
Chair & CEO David Solomon told investors that the results were “disappointing” and said the its business mix had been “particularly challenging”.
The bank recorded revenue of $10.6bn, down from $12.6bn last year and undershooting analyst estimates of $11.1bn as revenue in its asset and wealth management and global banking and markets divisions fell.
Investment banking fees fell 48 per cent due to a decline in dealmaking. Falling investment banking revenue has been a story of earnings season so far. Morgan Stanley, who also released results today, suffered a 49 per cent fall in investment banking revenue while JP Morgan and Citi also recorded similar falls.
Platform solutions revenue more than doubled to $513m from $189m last year as revenue in consumer platforms and transaction banking rose, reflecting higher credit card balances and deposit balances in each arm.
Platform solutions is a new unit, housing fintech and many of Goldman’s consumer banking products such as the Apple Card and Greensky, were was announced as part of restructuring plans in October.
It will be under particular scrutiny after Goldman refiled quarterly earnings reports which showed that the division had lost over $3bn in the last three years.
Provision for credit losses increased to $972m from $344m last year as the Wall Street giant increased its cash reserves in the face of a US recession.
Goldman said the loss provisions primarily “related to the credit card and point-of-sale loan portfolios”.
Goldman is embarking on one of the most aggressive cost-cutting measures in its history as expenses have continued to rise, particularly after its foray into consumer banking. Last week it axed over 3,000 employees.
Solomon told investors that “we have narrowed our ambitions on consumer strategy” and have started a process to “cease offering loans on the Marcus platform”. Marcus is Goldman’s lossmaking consumer banking arm. Solomon said Goldman will probably let Marcus’ loan book “roll down naturally”.
Discussing the results, Solomon said: “Our clear, near term focus is realising the benefits of our strategic realignment which will strengthen our core businesses, scale our growth platforms and improve efficiency.”