NAfter a sharp drop in profits of 44 percent in the third quarter of 2022, the CEO of the investment bank Goldman Sachs presented a reorganization of the business lines on Tuesday. 60-year-old David Solomon, who succeeded longtime Goldman Sachs boss Lloyd Blankfein in 2018, is reducing the number of business units from four to three. With this, Salomon wants to help the weakening Goldman Sachs share price to get back on its feet. The investment bank has lost 24 percent of its market value in a year, along with smaller rival Morgan Stanley.
On Tuesday, however, Goldman’s share price initially went up, as Goldman’s earnings decline was not quite as drastic as previously expected by the experts. Analyst Glenn Schorr from Evercore ISI spoke of a quarter that was definitely not one of the big ones, but still praised Goldman Sachs’ trading profit and net interest income in particular. While the Dow Jones rose 1.1 percent to 30,524 points on Tuesday, Goldman Sachs’ share price even climbed 2.3 percent, making it one of the top five values in this 30-stock standard stock index.
Goldman Sachs, the fifth-largest bank in the United States, earned $2.96 billion after taxes in the third quarter (same quarter last year. The other major US banks had previously presented their quarterly accounts. Goldman recorded the largest drop in profits at 44 percent; especially the Bank of America still did well, down 9 percent, but JP Morgan (earned 17 percent less net), Citigroup (down 25 percent), Morgan Stanley (29 percent) and Wells Fargo (31 percent) also did better than Goldman.
This is due to the dominance of investment banking. Net interest income increased by 30 percent thanks to the rise in interest rates, but this could not offset the declines in other business areas of the bank. Investment banking in particular suffered from the fact that companies hardly bought any competitors and therefore Goldman was not in demand as a consultant: while competitors had previously reported that their fee income had fallen by almost 50 percent, Goldman named income of $1.6 billion, 57 percent less than in the same period last year. However, Goldman has even expanded its leading position in the M&A business in view of increasing market share, said CEO Solomon.
Solomon urges caution
However, the profit was additionally burdened by the fact that Goldman Sachs set aside more money for loan defaults that were likely to occur in the imminent recession. At $515 million, loan loss provisions were almost three times higher than a year earlier. The consumer business, part of the retail banking business, doubled its revenues to $744 million, but is insignificant when compared to Goldman’s total revenues of nearly $12 billion.
“It’s time to be careful,” Solomon told CNBC on Tuesday, referring to the economy. While it’s not a foregone conclusion that the economy will be really difficult recession in the US.” The bank wants to cut costs, but Goldman Sachs is not planning any new job cuts, Solomon emphasized. In September it became known that the bank – as is regularly the case – is parting with a few hundred investment bankers.
Goldman is now merging its two dominant divisions, securities trading and investment banking. One loser of the reorganization is the private customer business, which will be combined with the fund business (asset management) in a second division. The CEO Solomon only created his own private customer division in 2020, in which the asset management for well-heeled private customers and the online bank Marcus are housed. The digital bank, named after Goldman Sachs founder Marcus Goldman, who was born in Trappstadt (Bavaria) in 1821, started the investment bank in 2016. In 2019 it became known that she also wanted to offer savings accounts and consumer credit to private customers in Germany. But that has not happened to this day.
Marcus is also still operating at a loss in the USA and Great Britain and has recently recorded notable departures, including to competitor JP Morgan, which launched a digital bank for consumers under the “Chase” brand in September 2021 in Great Britain and now has employees in Berlin is hiring to possibly expand this digital bank to Germany.
“Marcus” became best known for offering the Apple credit card. But this cooperation with the electronics group Apple will lead Goldman in the future in a new third business division called Platform Solutions. The online loan provider Greensky, which was acquired this year for $2.4 billion, will also be housed there.