Goldman warns it could slow hiring and cut spending as deals tumble

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The Goldman Sachs logo is seen on the floor of the New York Stock Exchange (NYSE) in New York, New York, U.S., November 17, 2021. REUTERS/Andrew Kelly

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July 18 (Reuters) – Goldman Sachs Group Inc (GS.N) reported a weaker-than-expected 48% quarterly profit decline on Monday, dampened by strength in fixed-income trading, but warned it could slow hiring and reduce spending. as the economic outlook deteriorates.

Interest rate hikes by the US Federal Reserve, aimed at tackling runaway inflation, have rattled global financial markets, dampening corporate appetite for deals and making them wary of equity offerings and debt securities.

Goldman’s investment banking revenue fell 41% to $2.14 billion in the second quarter as fees for underwriting stocks and debt fell as well as fees from advice on stock listings and mergers and acquisitions.

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“Given the challenging operating environment, we are closely reviewing all of our forward spending and capital expenditure plans to ensure the best use of our resources,” Chief Financial Officer Denis Coleman told analysts on a call. results.

“Specifically, we have made the decision to slow the speed of hiring and reduce certain professional fees going forward, although these actions will take some time to be reflected in our results.”

Goldman Sachs CEO David Solomon said the market environment has become more “complicated” due to a combination of macroeconomic and geopolitical conditions, citing the war in Ukraine.

“We see inflation deep in the economy,” he said. “And what is unusual about this particular period is that demand and supply are affected by exogenous events, namely the pandemic and the war.”

Despite the tumble in trading, Goldman shares rose 3% as revenue from the global markets unit, which houses its trading desks, jumped 32% to $6.47 billion, fixed income , with commodities and trading revenue up 55% and equities revenue up 11%.

Goldman’s quarterly report caps big bank earnings and mirrors peers JPMorgan Chase & Co (JPM.N) and Morgan Stanley (MS.N), which both said investment banking revenue fell by more than half. However, Goldman’s business unit outperformed JPMorgan Chase and Citigroup (CN), which last week announced market revenue increases of 15% and 25% respectively.

“Goldman has once again shown that it can excel in challenging markets given a leading pace in each of its four business lines,” Wells Fargo banking analyst Mike Mayo wrote in a note.

In the second quarter, there were 305 IPOs globally, raising $40.6 billion, down 65% from a year ago, according to Ernst & Young data.

The value of announced deals fell 25.5% year-on-year to $1 trillion in the quarter, as U.S. mergers and acquisitions activity fell 40%, Dealogic data showed. Read more

“The news from the banks was certainly very bad for the most part,” said Rick Meckler, partner at Cherry Lane Investments, adding, however, “It was not unexpected considering that investment banking revenues are down. falling and that some of them the banks have taken large credit reserves.”

Goldman’s net revenue fell 23% to $11.86 billion in the second quarter and profit was nearly halved to $2.8 billion, or $7.73 per share.

Asset management was another weak spot, with net revenue of $1.08 billion, down 79% from the second quarter of 2021.

CONSUMER ORIENTATION

Solomon worked to reduce the bank’s reliance on volatile transactions and investment banking by focusing on Marcus, its consumer banking unit.

Consumer and Wealth Management reported a 25% rise in net revenue to $2.18 billion, due to higher management fees and credit card balances.

However, if the US Federal Reserve raises borrowing costs further to a level that limits consumer spending, loan demand could suffer.

Goldman has set aside $667 million to cover credit losses, compared with net income of $92 million in the same period a year ago.

The US central bank tried to rein in a relentless price spike and pledged a “soft landing”.

In June, the Fed raised its benchmark federal funds rate by 75 basis points, the biggest hike since 1994, as inflation rose unexpectedly despite expectations that it had peaked.

Goldman’s net interest income jumped 6% to $1.73 billion.

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Reporting by Saeed Azhar in New York, Niket Nishant and Noor Zainab Hussain in Bengaluru; Additional reporting by Bansari Mayur Kamdar; Editing by Arun Koyyur and Nick Zieminski

Our standards: The Thomson Reuters Trust Principles.

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