Goldman Sachs hit by trading slowdown as it accelerates retail pullback

Goldman Sachs’ first-quarter income slumped 18 per cent following a lacklustre efficiency at its fixed-income trading unit as the Wall Street financial institution stepped up efforts to unwind an ill-fated foray into client banking.

The outcomes underscore the troublesome activity going through chief government David Solomon, who’s attempting to engineer the pullback from client banking at a time when Goldman’s conventional trading and dealmaking companies are beneath strain.

They additionally come at a time of flagging morale at Goldman, after the financial institution launched into a serious cost-cutting drive together with greater than 3,000 job cuts in January following what Solomon had described as a “disappointing” finish to 2022.

The financial institution’s trading arm, which has benefited from risky monetary markets amid aggressive charge rises from central banks and Russia’s invasion of Ukraine, reported revenues of $6.9bn for the primary three months of the yr, simply shy of analysts’ forecasts.

The miss was pushed by a disappointing efficiency in mounted earnings, currencies and commodities trading, the place revenues fell 17 per cent to $3.9bn. That missed analysts’ expectations and lagged behind rivals JPMorgan Chase and Citigroup, which not too long ago reported a rise throughout the identical interval.

In a name with analysts, Solomon defended the unit’s efficiency and mentioned it would have been a tall order to beat final yr’s quantity, when Goldman posted a giant leap in FICC trading revenues whereas “the competitor average was kind of flat or down”.

Meanwhile, Goldman took a few of its largest steps to this point to reverse a giant push into retail banking that fell out of favour with buyers following years of losses, promoting $1bn of client loans and hoisting the “for sale” signal over an organization it acquired little greater than a yr in the past.

The sale of a part of the mortgage ebook and a change in how it accounts for the remaining property — which have been marked as “available for sale” — resulted in a $470mn loss within the quarter, which was partly offset by the discharge of $440mn of credit score reserves. Solomon advised analysts the mortgage sale was an indication the financial institution was “narrowing our focus in the consumer space”.

Solomon additionally introduced the financial institution was initiating the sale of GreenSky, which lends to clients making residence enhancements, simply 13 months after Goldman accomplished the $2.2bn acquisition and trumpeted it as a proof the group was constructing the “consumer banking platform of the future”.

Goldman has since concluded it “may not be the best long-term holder of this business” given the financial institution’s “current strategic priorities”, Solomon mentioned.

Autonomous Research analyst Christian Bolu mentioned he anticipated the sale of GreenSky to end in additional losses, mentioning the financial institution had agreed the deal at “the top of the market for fintech companies”.

Investment banking, in the meantime, continued to undergo from a latest slowdown in dealmaking, with income within the first quarter falling 26 per cent versus a yr in the past to $1.58bn. That was roughly in keeping with related declines reported final week by JPMorgan and Citi.

The financial institution’s asset and wealth administration division, the cornerstone of Solomon’s efforts to diversify away from trading and funding banking, reported income of $3.2bn, 24 per cent larger than a yr in the past however nonetheless behind analysts’ expectations.

Solomon mentioned Goldman noticed a possibility to enroll rich shoppers in Europe who want to financial institution with new teams following the Swiss government-brokered sale of Credit Suisse to UBS.

“Our private wealth teams are very focused on that and the way we serve those clients,” Solomon mentioned.

Overall, Goldman’s first-quarter web earnings of $3.2bn beat analysts’ expectations. However, revenues fell 5 per cent versus final yr to $12.2bn, lacking consensus forecasts. Its shares had been down 1.35 per cent in early afternoon trading.

Goldman’s working bills, a key focus following the financial institution’s spending evaluate earlier this yr, rose 9 per cent at $8.4bn, larger than analysts’ estimates of about $8.1bn.

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