Goldman Misses Profit Estimates as Dealmaking, Asset Management Take a Hit

Goldman Sachs Group Inc. announced Tuesday a larger than expected 69 percent decrease in fourth-quarter profits as it struggles with a slump of dealmaking and weakness within its wealth management businesses.

Wall Street banks are making drastic cuts in their workforce and streamlining as dealmaking activity, which is their major source revenue, stalls due to worries about a weakening world economy and rising rates.

Goldman is also curbing its consumer banking ambitions as Chief Executive Officer David Solomon refocuses the bank’s resources to strengthen its core businesses such as investment banking and trading.

Goldman’s investment banking fees fell 48 percent in the latest quarter, while revenue from its asset and wealth management unit dropped 27 percent due to lower revenue from equity and debt investments.

It also reported a loss of $778million in pre-tax profits for its platform solutions unit. This includes transaction banking, credit cards, and financial technology companies.

According to the bank, full-year net loss in platform solutions business was $1.67 trillion.

In premarket trading, shares of the bank fell 2.5 percent to $364.56

Rising Costs

Wall Street’s biggest banks have stockpiled more rainy-day funds to prepare for a possible recession, while showing caution about forecasting income growth in an uncertain economy and as higher rates increase competition for deposits.

The quarter saw an 11 percent increase in total operating expenses at Goldman to $8.1 billion.

“Expenses were hard to assess, as GS did not disclose the severance/restructuring charges,” UBS analysts wrote in an email.

According to Refinitiv IBES data the bank reported a profit $1.19 billion or $3.32 per share for the three-months ended Dec. 31, which was below the Street estimate of $5.48.

“Widely expected to be awful, Goldman Sachs’ Q4 results were even more miserable than anticipated,” Octavio Martenzi, CEO at consultancy Opimas.

“The real problem lies in the fact that operating expenses shot up 11 percent, while revenues tumbled. This strongly suggests more cost-cutting and layoffs are going to come,” He added.

Goldman’s trading business was a bright spot as it benefited from heightened market volatility, spurred by the Federal Reserve’s quantitative tightening.

Fixed income, currency, commodities and trading revenue grew by 44%, while revenue from equity trading decreased by 5 percent.

Net revenue overall fell 16% to $10.6billion

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