Goldman misses earnings estimates as deals slump and consumer business hits

Jan 17 (Reuters) – Goldman Sachs Group Inc (GS.N) reported a bigger-than-expected 69% drop in fourth-quarter profit on Tuesday as it battled a drop in deals, lower revenue from the asset and wealth management and recognized losses in its consumer business.

Wall Street banks are making drastic staff cuts and streamlining operations as trading activity, their main source of income, comes to a halt amid concerns over a weakening global economy and the rise in interest rates.

Goldman is also curbing its consumer banking ambitions as chief executive David Solomon refocuses the bank’s resources on bolstering its core businesses such as investment banking and trading.

Solomon confirmed the bank was cutting 6% of its workforce, or around 3,200 jobs, and making changes to the consumer sector to navigate an uncertain outlook for 2023.

“We tried to do too much, too fast,” he said of consumer businesses such as his direct-to-consumer unit Marcus. “We didn’t execute some of them perfectly, so we looked at them carefully and you make adjustments.”

Goldman reported a net loss of $660 million in its platform solutions unit, which houses transaction banking, credit card and fintech businesses, as provisions for credit losses rose as the business was growing.

Full-year net loss for the platform solutions business was $1.67 billion, the bank said, even though net income of $1.50 billion for 2022 was higher by 135% to that of 2021.

Goldman confirmed on Tuesday that it plans to stop making unsecured consumer loans after transferring Marcus to its asset and wealth management arm. The launch of Marcus’ checking account has also been postponed.

Goldman’s investment banking fees fell 48% in the latest quarter, while revenue from its asset and wealth management unit fell 27% due to lower income from investments in shares and debts.

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

The shares were down almost 7% at $347.66 in midday trading.

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INCREASING COSTS

Wall Street’s biggest banks have been hoarding more funds for rainy days to prepare for a possible recession, while being cautious about revenue growth forecasts in an uncertain economy and as higher rates rise competition for deposits.

Goldman’s total operating expenses rose 11% to $8.1 billion in the quarter. A source told Reuters last week that the bank would lay off 3,000 staff to try to control costs.

Goldman chief financial officer Denis Coleman said severance packages would 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.

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

“The real problem is that operating expenses have climbed 11% while revenues have fallen. This strongly suggests that more cost reductions and layoffs are going to happen,” he added. .

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

Revenues from fixed income, currencies and commodities trading increased by 44%, while revenues from equity trading fell by 5%.

Overall net income fell 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; Editing by Anil D’Silva and Mark Porter

Our standards: The Thomson Reuters Trust Principles.

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