Goldman misses earnings estimates as deal closings slump and consumer business hits

17 Jan. (Reuters) – Goldman Sachs Group Inc (GS.N) reported a larger-than-expected 69% drop in fourth-quarter earnings on Tuesday as it struggled with a slump in deal closings, a drop in asset income – and asset management and recorded losses in its consumer business.

Wall Street banks are slashing their workforces and streamlining operations as dealmaking, their main source of income, is stalled by concerns about a weakening global economy and rising interest rates.

Goldman is also reining in 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 is cutting 6% of its workforce, or about 3,200 jobs, and making changes to its consumer business to navigate an uncertain 2023 outlook.

“We were trying to do too much too soon,” he said of consumer businesses such as direct-to-consumer unit Marcus. “We didn’t execute some of them perfectly, so we looked 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, while loan loss provisions grew as the company expanded.

The full-year net loss for the platform solutions business was $1.67 billion, the bank said, though net sales of $1.50 billion for 2022 were 135% higher than in 2021.

Goldman confirmed on Tuesday that it plans to stop providing unsecured consumer loans after moving Marcus into its asset and wealth management arm. The launch of the Marcus checking account has also been delayed.

Goldman’s investment banking costs fell 48% in the last quarter, while wealth and wealth management unit revenues fell 27% due to lower income from equity and debt investments.

Solomon said the outlook for investment banking could be better 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 during afternoon trading.

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Wall Street’s largest banks have increased rainy-day funds to prepare for a potential recession, while cautious about forecasting income growth in an uncertain economy and as higher rates increase competition for deposits.

Total operating expenses at Goldman increased 11% in the quarter to $8.1 billion. A source told Reuters last week that the bank would lay off 3,000 employees in an effort 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, missing Street’s estimate of $5.48, according to Refinitiv IBES data.

“Generally expected to be terrible, Goldman Sachs’ Q4 results were even more miserable than expected,” said Octavio Marenzi, CEO of consulting firm Opimas.

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

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

Fixed income, foreign exchange and commodities trading revenues increased by 44%, while equity trading revenues fell by 5%.

Total net sales decreased 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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