Goldman Sachs profits trimmed by sluggish deal making

A sharp slowdown in deal making activity caused by the weakening global economic environment has squeezed investment banking giant Goldman Sachs’s profits, the firm announced today.

Net earning applicable to common shareholders at Goldman over the three months to September fell to $2.96bn (£2.62bn).

That is nearly half the $5.28bn (£4.67bn) notched by the Wall Street titan over the same period last year.

The profit hit was not as severe as analysts had expected, however. Goldman’s shares are down around 20 per cent this year.

Soaring inflation has forced the US Federal Reserve to hike interest rates steeply this year, including three back-to-back 75 basis points rises. The central bank is expected to launch a similar move next month.

As a result, firms have struggled to finance deals profitably and global economic activity has cooled, souring the business environment.

Goldman also announced it is splitting its business into three parts in a bid to revive fee income, which it relies heavily on to generate profits.

David Solomon, chief executive and chair of Goldman, said the decision was designed to offset a “backdrop of uncertainty and volatility in the markets” and “prudently manage our resources”.

Investment banking revenues slumped over 50 per cent over the last year to $1.54bn (£1.36bn), underscoring how quickly the global deal making has swung from booming to sluggish.

Goldman’s share price this year is down over 20 per cent

“The decrease in underwriting net revenues was due to significantly lower net revenues in both equity and debt underwriting, reflecting a significant decline in industry-wide volumes,” Goldman said in its earnings report. 

Wall Street is closely watching US banks’ third quarter earnings season for signs of how consumers and businesses are responding to a challenging economic environment in which experts have warned America is on course to tip into a recession.

Solomon repeated those projections on Goldman’s earnings call.

Yesterday, Bank of America reiterated that consumers remain resilient. However, JP Morgan last week said it had ramped loan loss reserves in anticipation of a jump in defaults.

UK banks also begin reporting later this month.