Report: Goldman Sachs Earnings Hit by Slowdown in Deal Making

Goldman Sachs is reportedly expected to announce weak quarterly earnings on Tuesday (Oct. 17) as a result of a slowdown in deal making and its withdrawal from the consumer business.

The investment bank’s third-quarter earnings per share (EPS) are estimated to decline by 36% compared to the previous year, Reuters reported, citing average estimates compiled by global financial markets infrastructure and data provider LSEG.

The decline in deal making, along with potential write-downs on commercial real estate assets and provisions for losses on credit cards, are contributing factors to the weak earnings, according to the report. The investment banking sector’s lackluster performance is primarily responsible for the bank’s expected results.

Goldman Sachs has been scaling down its consumer business under the leadership of CEO David Solomon, making the bank more reliant on businesses influenced by economic cycles, the report said. The global banking and markets unit, which includes investment banking and trading, accounted for approximately 66% of the bank’s revenue in the second quarter.

The bank’s stock has also been affected, experiencing a nearly 9% decline this year, per the report. While some analysts still view it as a favorable investment due to the potential for a recovery in investment banking, others caution against mounting threats to such a rebound.

Goldman Sachs has been actively involved in numerous initial public offerings (IPOs) this year, including that of chip designer Arm Holdings, according to the report. However, its performance in advising on mergers and acquisitions (M&A) has remained weak, aligning with the broader industry trend.

Solomon said, per the report, that while there is still a lag in M&A activity, people are beginning to embrace a better environment and think more strategically.

To navigate the challenging market conditions, Goldman Sachs has already laid off thousands of employees earlier this year and may cut around 400 more employees in the upcoming weeks as part of its annual performance review, the report said, citing unnamed sources. 

This report comes a day after Goldman Sachs took another step in scaling down its consumer ambitions, announcing the sale of its GreenSky platform and associated loan assets. Solomon said in a Wednesday (Oct. 11) press release: “This transaction demonstrates our continued progress in narrowing the focus of our consumer business.”

It also comes a day after reports that the largest U.S. banks are bracing themselves for a surge in bad debt write-offs. Banks are also facing challenges around net interest income, loan growth and new capital rules.