Goldman Sachs warned on Monday it would slow hiring and could shed underperforming staff even as traders at the Wall Street giant helped it ride out a slump in trading and report better-than-expected earnings at the second trimester.
With fears of a growing recession, Goldman Chief Executive David Solomon warned of growing uncertainty due to high inflation, tight monetary policy in the United States and war in Ukraine.
“In my dialogue with CEOs of major global companies, they tell me they continue to see persistent inflation in their supply chain,” Solomon said on a call with analysts.
Chief Financial Officer Denis Coleman said the bank was “closely reviewing all of our future spending and investment plans”. That includes slowing the pace of hiring and potentially reintroducing the year-end performance review of its employee base, which it had largely halted during the coronavirus pandemic.
The Financial Times reported last week that Goldman had suspended the hiring of some replacements for bankers who left this year.
The pessimistic outlook contrasted with the market’s reaction to Goldman’s beaten earnings, with the bank’s share price rising about 2.5% on Monday.
One analyst remarked to Solomon and Coleman that “your guys’ tone seems very, very cautious” despite “pretty solid results.”
For the second quarter, Goldman said its net profit fell 47% to $2.9 billion or $7.73 per share, from $5.5 billion or $15.02 per share in the same period. last year. That was ahead of analyst estimates of $2.6 billion or $6.65 per share, according to consensus data compiled by Bloomberg.
Investment banking revenue fell 41% to $2.1 billion, in line with analysts’ estimates and down from the 61% decline reported last week by rival JPMorgan Chase and the 55% decline at Morgan Stanley.
Investment banks in particular are suffering from a dearth of equity underwriting activity, following a series of IPOs and IPOs by special purpose acquisition firms the last year.
Revenue from Goldman’s trading division partially offset declines in investment banking, which benefited from increased buying and selling during recent market volatility.
Revenue rose 32% to $6.5 billion, remaining above pre-pandemic levels and above analyst forecasts of $5.8 billion. Trading revenue at JPMorgan rose 15% and 21% at Morgan Stanley.
Fixed income trading revenue rose 55% to $3.6 billion, ahead of estimates of $3.1 billion, while equity revenue rose 11% to 2.9 billion, also slightly ahead of analysts’ expectations of $2.7 billion.
Goldman said its board approved a 25% increase in its quarterly dividend to $2.50 per share.
During the quarter, Goldman also provisioned $667 million for credit losses amid growing fears that a potential U.S. recession could affect credit quality.
The bank’s asset management division posted revenue of $1.1 billion, down 79% from the same period last year, when Goldman enjoyed strong gains on its equity investments . Analysts had forecast revenue of $685 million.
Revenue from the consumer and wealth management unit, which includes its online bank Marcus and its Apple credit card, rose 25% to $2.2 billion, just ahead of analysts’ forecasts of 2, $1 billion.
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