Goldman’s Quarterly Profit Drops as Deal-Making Wanes

After announcing a 48% decline in second-quarter profits, Goldman Sachs Group Inc. said it may reduce hiring and cut spending amidst a shaky financial climate that has companies shying away from deals and stock and debt offerings.

Investment banking revenue dropped 41% to $2.14 billion, spurred by falling fees from equity and debt underwriting and stock and M&A advising.

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"Given the challenging operating environment, we are closely re-examining all of our forward spending and investment plans to ensure the best use of our resources," said Goldman’s Chief Financial Officer, Denis Coleman, according to Reuters.

In addition to reducing hiring and professional fees, the bank will resume end-of-year performance reviews for employees, a sign that may indicate a reduction in force. The evaluations, which pinpoint underachievers, were paused during the pandemic. In 2021, Wall Street hired voraciously, according to Reuters, but has slowed as recently as May.

A combination of macroeconomic conditions and global politics, including the Russian invasion of Ukraine, has complicated the market, Goldman CEO David Solomon told Reuters.
"We see inflation deeply entrenched in the economy. And what's unusual about this particular period is that both demand and supply are being affected by exogenous events, namely the pandemic and the war."
Though deals have fallen off, the bank’s shares increased 3% as global markets revenue shot up 32% to $6.47 billion. Fixed income, commodities, and trading revenue also rose, by 55%, and equities revenue, by 11%. The value of Goldman’s announced deals dropped 25.5% year-on-year to $1 trillion in the second quarter as U.S. M&A activity fell 40%, according to Dealogic data.
Both JPMorgan Chase & Co. and Morgan Stanley reported that revenues from investment banking were more than halved in the second quarter.