Slump in deal making nearly halves Goldman Sachs profits

A weaker deal making environment has nearly halved Wall Street investment bank Goldman Sachs’s profits.

Net earnings dropped to $2.8bn (£2.4bn) in the three months to June, down 48 per cent from $5.3bn (£4.5bn) in the same period last year, Goldman said today.

Investment banking revenues collapsed nearly 50 per cent to $1.8bn (£1.5bn) driven by businesses putting off listing and debt issuance plans amid concerns over the global economic downturn.

Equity underwriting – a process in which investment banks foot the bill for any unsold newly issued shares – fees fell 89 per cent over the last year. Debt underwriting tumbled over 50 per cent.

David Soloman, chairman and chief executive of Goldman Sachs, said: “Despite increased volatility and uncertainty, I remain confident in our ability to navigate the environment, dynamically manage our resources and drive long-term, accretive returns for shareholders.”

Despite the steep profit fall, they were better than traders expected, pumping Goldman’s shares up in pre-market in trading.

Net interest income – the difference between what a bank pays to depositors and to borrowers – jumped six per cent over the last year, driven by Goldman passing on the US Federal Reserve’s successive rate hikes on to borrowers.

Bank of America, the US’s second-largest bank by assets, also received a 22 per cent bump from higher borrowing costs, it announced today.

“Solid client activity across our businesses, coupled with higher interest rates, drove strong net interest income growth and allowed us to perform well in a weakened capital markets environment,” Brian Moynihan, chairman and chief executive of Bank of America, said.

But, slim deal making conditions whacked the lender, with investment banking income dropping 47 per cent. That knock led to a 34 per cent slide to $5.93bn (£5bn) in profits at Bank of America.

Goldman and Bank of America have rounded off a second quarter US banks’ earning season that has been characterised by banks setting aside millions to deal with an expected jump in loan defaults caused by high inflation.

Fellow Wall Street investment bank JP Morgan’s profit slumped due to a rise in loan-loss provisions. 

Banks have signalled the US consumer is holding up well amid the worst inflation surge in nearly 41 years, indicating a recession is not nailed on.

Goldman set aside nearly $700m (£590m) of provisions last quarter, compared to a $92m (£77m) released last year, driven by “portfolio growth (primarily in credit cards) and the impact of broad macroeconomic concerns,” it said.