Goldman Sachs said it’s slowing hiring and bringing back performance reviews to cull the bank’s lowest performers after profits were nearly halved in probably the most recent quarter.
Because the pandemic-era boom in corporate dealmaking begins to sputter amid rising recession fears and surging rates of interest, the bank is trying to cut costs companywide.
“Given the difficult operating environment, we’re closely re-examining all of our forward spending and investment plans,” Chief Financial Officer Denis Coleman said on Monday’s earnings call. “Specifically, now we have made the choice to slow hiring velocity and reduce certain skilled fees going forward.”
The bank will weed out laggard staff by simply not filling roles after employees leave and by axing its lowest performers, Coleman said. The dreaded performance review had been suspended throughout the pandemic when the bank was trying to hire as many individuals as possible as profits hit all-time highs.
Coleman’s comments follow The Post’s report that layoffs are looming across Wall Street as soaring rates of interest and recession fears have tanked appetites for mergers, IPOs and other big corporate deals.
The Wall Street giant helmed by David Solomon reported second-quarter earnings of $2.93 billion, or $7.73 per share, on Monday, precipitously lower than the second quarter of 2021 when the bank hauled in $5.49 billion.
Investment banking was the driving force behind the slump — bringing in 41% less then it did a 12 months ago. Trading revenue of $6.47 billion — up 32% 12 months over 12 months — barely offset losses.
David Solomon said he was “cautious” in regards to the economy.AFP via Getty Images
Still, higher than expected trading revenues offset a few of the losses and pushed Goldman’s earnings past analysts’ forecasts of $6.46 per share, in keeping with data from FactSet.
“Goldman once more showed that it may well excel in difficult markets,” Wells Fargo banking analyst Mike Mayo told The Post. “Mergers remain best-in-class and have improved backlogs.”
While Goldman’s banking fees were disappointing in comparison with a 12 months earlier — the revenue was marginally higher than other banks like JPMorgan and Morgan Stanley. JPMorgan’s banking fees dropped 54% and Morgan Stanley’s banking fees dropped 55% within the second quarter, each banks reported last week.
Compensation, an enormous operating cost for the bank was down 30% 12 months over 12 months. Overall, operating expenses were down just 11%.
Goldman Sachs beat earnings expectations but profit still dropped 47% 12 months over 12 months.Reuters
Solomon was desperate to take a victory lap following the report.
“We delivered solid ends in the second quarter as clients turned to us for our expertise and execution in these difficult markets,” Solomon said in a press release.
While Solomon said he was “confident” Goldman could “navigate the environment,” he also acknowledged “economic conditions are tightening” on the earnings call.
“It’s prudent, and appropriate, for us to be cautious,” he added.
Investors were clearly bullish on the earnings — Goldman shares jumped nearly 4% to $304 after the opening bell. Nonetheless, shares are down greater than 25% 12 months thus far.
The steep decline in revenue is a pointy turn of events from the previous few years when banks raked in massive investment banking fees. But because the economy faces headwinds, all major banks are forced to grapple with the difficult economic reality.
Each JPMorgan and Morgan Stanley’s earnings dropped within the second quarter — however the slump of 28% and 29% respectively was far lower than that of of Goldman Sachs. Like Goldman Sachs, JPMorgan and Morgan Stanley’s investment banks tanked while the trading desks outperformed.