Goldman misses earnings estimates as business deals plummet consumer business

Goldman misses earnings estimates as business deals plummet, consumer business hit

Jan 17 (Portal) – Goldman Sachs Group Inc (GS.N) on Tuesday reported a sharper-than-expected 69% fall in fourth-quarter profit as the company grappled with a slump in business operations, a decline in income from assets – and Wealth Management posted losses in its consumer business.

Wall Street banks are severely cutting their workforce and streamlining their operations as operations, their main source of income, falter on worries about a slowing global economy and rising interest rates.

Goldman is also dampening its consumer-business ambitions as chief executive officer David Solomon refocuses the bank’s resources on strengthening its core businesses, like investment banking and retail.

Solomon confirmed the bank is cutting 6% of its staff, or around 3,200 jobs, and making changes in the consumer business to deal with an uncertain 2023 outlook.

“We were trying to do too much too quickly,” he said of the consumer business like his direct-to-consumer unit, Marcus. “We didn’t execute some perfectly, so we took a good look at those, and you make adjustments.”

Goldman reported a $660 million net loss at its platform solutions unit, which houses transaction banking, credit card and financial technology companies, as provisions for credit losses increased as the business expanded.

The full-year net loss for its platform solutions business was $1.67 billion, the bank said, despite net revenue of $1.50 billion for 2022, up 135% from 2021.

Goldman confirmed Tuesday that it plans to end unsecured consumer lending after moving Marcus to its wealth and wealth management arm. The start of the checking account for Marcus has also been postponed.

Goldman’s investment banking fees declined 48% last quarter, while revenue from its wealth management unit declined 27% on lower equity and debt investment income.

Solomon said the outlook for investment banking could be brighter in the “back half” of 2023 as people soften their views on the economic outlook for this year.

Shares fell nearly 7% to $347.66 in midday trade.

[1/2] Goldman Sachs logo is seen on the trading floor of the New York Stock Exchange (NYSE) in New York City, New York, the United States, 17 November 2021. Portal/Andrew Kelly

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GROWING COSTS

Wall Street’s biggest banks have been accumulating more rainy-day funds to prepare for a possible recession, while also being cautious about forecasting earnings growth in an uncertain economy, and as higher interest rates increase competition for deposits strengthen.

Goldman’s total operating expenses rose 11% in the quarter to $8.1 billion. A source told Portal last week that the bank was laying off 3,000 employees to contain costs.

Goldman Chief Financial Officer Denis Coleman said severance payments will be adjusted in 2023.

The bank reported earnings of $1.19 billion, or $3.32 per share, for the three months ended Dec. 31, falling short of Street’s estimate of $5.48, according to data from Refinitiv IBES.

“Goldman Sachs’ widely anticipated terrible fourth-quarter results were even worse than expected,” said Octavio Marenzi, CEO of consulting firm Opimas.

“The real problem lies in the fact that operating expenses have skyrocketed by 11% while revenues have plummeted. This strongly suggests further cost cutting and layoffs,” he added.

Goldman’s trading business was a bright spot as it benefited from heightened market volatility spurred by the Federal Reserve’s quantitative tightening.

Revenues from trading in fixed income, currencies and commodities rose 44%, while revenues from equities trading declined 5%.

Total net sales declined 16% to $10.6 billion.

Reporting by Niket Nishant and Noor Zainab Hussain in Bengaluru and Saeed Azhar in New York; Additional reporting by Bansari Mayur Kamdar; Edited by Anil D’Silva and Mark Porter

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