Goldman Sachs’ first-quarter profits slumped 18 per cent following a lacklustre performance at its fixed-income trading unit as the Wall Street bank stepped up efforts to unwind an ill-fated foray into consumer banking.
The results underscore the difficult task facing chief executive David Solomon, who is trying to engineer the pullback from consumer banking at a time when Goldman’s traditional trading and dealmaking businesses are under pressure.
They also come at a time of flagging morale at Goldman, after the bank embarked on a major cost-cutting drive including more than 3,000 job cuts in January following what Solomon had described as a “disappointing” end to 2022.
The bank’s trading arm, which has benefited from volatile financial markets amid aggressive rate rises from central banks and Russia’s invasion of Ukraine, reported revenues of $6.9bn for the first three months of the year, just shy of analysts’ forecasts.
The miss was driven by a disappointing performance in fixed income, currencies and commodities trading, where revenues fell 17 per cent to $3.9bn. That missed analysts’ expectations and lagged behind rivals JPMorgan Chase and Citigroup, which recently reported an increase during the same period.
In a call with analysts, Solomon defended the unit’s performance and said it would have been a tall order to beat last year’s number, when Goldman posted a big jump in FICC trading revenues while “the competitor average was kind of flat or down”.
Meanwhile, Goldman took some of its biggest steps to date to reverse a big push into retail banking that fell out of favour with investors following years of losses, selling $1bn of consumer loans and hoisting the “for sale” sign over a company it acquired little more than a year ago.
The sale of part of the loan book and a change in how it accounts for the remaining assets — which have been marked as “available for sale” — resulted in a $470mn loss in the quarter, which was partly offset by the release of $440mn of credit reserves. Solomon told analysts the loan sale was a sign the bank was “narrowing our focus in the consumer space”.
Solomon also announced the bank was initiating the sale of GreenSky, which lends to customers making home improvements, just 13 months after Goldman completed the $2.2bn acquisition and trumpeted it as a evidence the group was building 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 bank’s “current strategic priorities”, Solomon said.
Autonomous Research analyst Christian Bolu said he expected the sale of GreenSky to result in further losses, pointing out the bank had agreed the deal at “the top of the market for fintech companies”.
Investment banking, meanwhile, continued to suffer from a recent slowdown in dealmaking, with revenue in the first quarter falling 26 per cent versus a year ago to $1.58bn. That was roughly in line with similar declines reported last week by JPMorgan and Citi.
The bank’s asset and wealth management division, the cornerstone of Solomon’s efforts to diversify away from trading and investment banking, reported revenue of $3.2bn, 24 per cent higher than a year ago but still behind analysts’ expectations.
Solomon said Goldman saw an opportunity to sign up wealthy clients in Europe who are looking to bank with new groups 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 said.
Overall, Goldman’s first-quarter net income of $3.2bn beat analysts’ expectations. However, revenues fell 5 per cent versus last year to $12.2bn, missing consensus forecasts. Its shares were down 1.35 per cent in early afternoon trading.
Goldman’s operating expenses, a key focus following the bank’s spending review earlier this year, rose 9 per cent at $8.4bn, higher than analysts’ estimates of about $8.1bn.
