The investment bank’s profits plummeted 69%, primarily due to a decrease in dealmaking (M&A between other companies), lower asset management revenue and substantial losses in its consumer loan business.
Inflation and its byproducts are increasingly showing its adverse effects on spending habits; companies and individuals are bearing down and slashing their unnecessary spending. The recently red-hot housing and used car markets have cooled considerably, with home prices even falling in some cities. High prices have consumers thinking twice about luxury goods at the grocery store.
Goldman Sachs reported that its platform solutions division, substantially comprising consumer loans and transactional banking, lost $660 million in the quarter, which turned the division red for the year; despite increasing revenue by 135% from 2021, the company reported a $167 million loss on $1.5 billion in revenues from the division.
Much of the division’s loss is tied to the slowdown in spending. Still, there were also significant losses, specifically in the consumer loan category, indicating consumers are missing payments on personal loans and credit cards. The company seemingly confirmed this by announcing that it would stop offering unsecured consumer loans.
Source: Yahoo Finance YouTube
Like other large companies facing decreases in profits, Goldman Sachs is looking to cut costs wherever possible, including by laying off staff. The company confirmed that it would be laying off 6% of its workforce, primarily from the consumer loan segment, in 2023.
Goldman CEO David Solomon lamented the cuts, commenting:
The slowdown in spending from just about all segments is another indicator that the recession that many feared is looming. Recessions are typically brutal to banks, which rely on spending to generate revenues. The fact that Goldman Sachs is struggling this badly could be another sign things could be about to get worse for the world’s largest financial institutions. Investors in the banking sector will need to do the due diligence to determine which company will weather the storm the best; based on these earnings, Goldman Sachs is likely not it.
Shares of Goldman Sachs are currently trading at $349.09 per share, down -0.28% on the day. YTD, GS stock is up +0.83%.
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Disclaimer: Wealthy VC does not hold a long or short position in any of the stocks mentioned in this article.