The logo for Goldman Sachs on the trading floor at the New York Stock Exchange, on Nov. 17, 2021.ANDREW KELLY/Reuters
Goldman Sachs Group Inc GS-N on Tuesday reported a bigger-than-expected 69 per cent drop in fourth-quarter profit as it struggled with a slump in dealmaking, a drop in asset and wealth management revenue and booked losses at its consumer business.
Wall Street banks are making deep cuts to their workforce and streamlining their operations as dealmaking activity, their major source of revenue, stalls on worries over a weakening global economy and rising interest rates.
Goldman is also curbing its consumer banking ambitions as Chief Executive Officer 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 per cent of its headcount, or around 3,200 jobs, and was making changes to the consumer business to navigate an uncertain outlook for 2023.
“We tried to do too much too quickly,” he said about the consumer business such as its direct-to-consumer unit Marcus. “We didn’t execute perfectly on some so we’ve taken a hard look at those, and you make adjustments.”
Goldman reported a net loss of $660 million at its platform solutions unit, which houses transaction banking, credit card and financial technology businesses, as provisions for credit losses grew while the business was expanding.
Full-year net loss for the platform solutions business was $1.67 billion, the bank said, even though net revenue of $1.50 billion for 2022 was 135 per cent above 2021.
Goldman reported a profit of $1.19 billion, or $3.32 per share, for the three months ended Dec. 31, missing the Street estimate of $5.48, according to Refinitiv IBES data.
Fourth-quarter “feels a bit like a kitchen sink,” said a Deutsche bank note led by analyst Matthew O’ Conner.
“The EPS (earnings per share) miss was due to much higher-than-expected expenses and cost of credit – mostly driven by loan loss reserve build,” the note said.
Shares of Goldman Sachs were down 6.5 per cent in late afternoon trade, while shares in Morgan Stanley soared almost 7 per cent as the bank reported a smaller-than-expected 41 per cent drop in fourth-quarter profit on Tuesday, driven by higher revenue at its wealth management division.
Goldman on Tuesday confirmed that it is planning to stop making unsecured consumer loans after it moved Marcus into its asset and wealth management arm. The checking account launch for Marcus has also been postponed.
Goldman’s investment banking fees fell 48 per cent in the latest quarter, while revenue from its asset and wealth management unit dropped 27 per cent due to lower revenue from equity and debt investments.
Solomon said the investment banking outlook could be better in the “back half” of 2023, as people are softening their views on the economic outlook for this year.
Wall Street’s biggest banks have stockpiled more rainy-day funds to prepare for a possible recession, while showing caution about forecasting income growth in an uncertain economy and as higher rates increase competition for deposits.
Total operating expenses at Goldman rose 11 per cent to $8.1 billion in the quarter. A source told Reuters last week that the bank would lay off 3,000 employees in an attempt to rein in costs.
Goldman Chief Financial Officer Denis Coleman said severance charges will be adjusted in 2023.
Goldman’s trading business was a bright spot as it benefited from heightened market volatility, spurred by the Federal Reserve’s quantitative tightening.
Fixed income, currency and commodities trading revenue was up 44 per cent while revenue from equities trading fell 5 per cent.
Overall net revenue was down 16 per cent at $10.6 billion.