What does Goldman Sachs’ March quarter result indicate?

21 Apr 2023 , 03:33 PM

Goldman Sachs’ March quarter profit came down y-o-y by 19% to $ 3.09 billion. The company’s profit was hit because of lower mergers & acquisition activity in the quarter. It also incurred losses on its bond portfolio because of the higher interest rate scenario. Losses were also incurred as it tried to scale down its consumer lending business.

According to data from Dealogic, global mergers & acquisitions activity fell to its lowest level, in the March quarter, in more than a decade. Goldman Sachs earns significant investment banking revenues from mergers & acquisitions. Revenue  of its investment banking division came down y-o-y by 26%. It stood at $1.58 billion in the quarter. The decline in mergers & acquisitions in general points to the economic uncertainty that is prevalent. Companies are taking a cautious approach. They are hesitating in buying other companies. Rising interest rates have also increased the cost of capital for companies that want to acquire other companies. 

Goldman Sachs is in the process of scaling down its consumer lending business. As part of this it is selling the loans of this business to other parties. It posted a loss of $470 million on the sale of these loans, in the March quarter.  An imminent economic recession in US may also mean increase in default on consumer loans. That is one reason why the company is trying to exit much of the consumer loans that it has disbursed. 

The company also saw year-on-year declines in revenues from its trading division. The trading division of the company includes equities trading, commodities trading, and trading of bonds. Revenues from trading in bonds and commodities fell y-o-y by 17% to $13.93 billion. Revenues from equity trading fell y-o-y by 7% to $3.02 billion. The company incurred some losses on its existing bond portfolio because of successive hikes in interest rates. Prices of existing bonds go down when interest rates go up. The decline in revenues from equity trading business comes in the backdrop of strong performance by US equity markets and other equity markets in much of the first two months of the March quarter. 

The company saw good performance in its asset and wealth management business. Revenues from this business increased y-o-y by 24% to $3.02 billion.  This business mainly involves asset management for wealthier clients.