January 17 (Reuters) – Goldman Sachs Group Inc (GS.N) reported a larger-than-expected 69% drop in fourth-quarter profit on Tuesday. recorded a loss in the consumer business.
Wall Street banks are making deep cuts to their workforce and streamlining their operations as their main source of income is their deal-making activity, lingering on concerns about the weakening global economy and rising interest rates.
Goldman is also curbing consumer banking ambitions as Chief Executive David Solomon refocuses the bank’s resources on strengthening its core businesses, such as investment banking and trading.
Solomon confirmed that the bank had laid off 6% of its headcount, or about 3,200 people, and made changes to its consumer business to navigate an uncertain outlook for 2023.
“We tried to do a lot of things very quickly,” said Marcus, his direct-to-consumer unit, about the consumer business. “Some of them we didn’t implement perfectly, so we looked at them carefully and you made adjustments.”
Goldman reported a net loss of $660 million in its platform solutions unit, which houses its transaction banking, credit card and fintech businesses, as the business expands as the provision for credit losses increases.
The bank said the full-year net loss for its platform solutions business was $1.67 billion, while net income of $1.50 billion for 2022 was 135% higher than for 2021.
Goldman confirmed Tuesday that it plans to stop offering unsecured consumer loans after moving Marcus into the asset and wealth management arm. The launch of the checking account for Marcus was also delayed.
Goldman’s investment banking fees fell 48% in the last quarter, while revenue from its asset and asset management unit fell 27% 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 soften their view of the economic outlook for this year.
Shares were down nearly 7% at $347.66 in midday trading.
GROWING COSTS
Wall Street’s biggest banks are being cautious about forecasting revenue growth in an uncertain economy and as high rates increase deposit competition, as they stock more rainy-day funds to prepare for a possible recession.
Total operating expenses at Goldman rose 11% in the quarter to $8.1 billion. A source told Reuters last week that the bank will lay off 3,000 employees in an effort to rein in costs.
Denis Coleman, Goldman Chief Financial Officer, said severance pay will be adjusted in 2023.
The bank reported earnings of $1.19 billion, or $3.32 per share, for the quarter ended December 31, missing the Street estimate of $5.48, according to Refinitiv IBES data.
“Goldman Sachs’ Q4 results, which were expected to be dire overall, were even worse than expected,” said Octavio Marenzi, CEO of consulting firm Opimas.
“The real problem lies in the fact that operating expenses rose 11% as revenues fell. This strongly suggests that further cost cuts and layoffs are to come,” he added.
Goldman’s trading business was a bright spot as it benefited from increased market volatility spurred by the Federal Reserve’s monetary tightening.
Fixed-income, currency and commodity trading revenue increased 44%, while equity trading revenue decreased 5%.
Overall net income was $10.6 billion, down 16%.
News by Niket Nishant and Noor Zainab Hussain from Bengaluru and Saeed Azhar from New York; Additional reporting by Bansari Mayur Kamdar; Editing by Anil D’Silva and Mark Porter
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