Denver In the past year, Goldman Sachs boss David Solomon has repeatedly had to comment on the subject of banker burnout. The boom in IPOs and mergers and acquisitions led to overwork, especially among young employees, about which they have complained publicly.
Now, however, there is another extreme: The income from investment banking has fallen by 41 percent compared to the previous year, as the institute announced on Monday. The business with stock issues even collapsed by 89 percent. The situation is similar at Bank of America, which also presented its quarterly results on Monday.
It’s a mix of bad news that’s clouding the mood on Wall Street. The war in Ukraine, rapidly rising inflation coupled with fears of a recession in the USA and Europe, and ongoing bottlenecks in the supply chains have scared customers away. Mergers and acquisitions are being postponed whenever possible. The IPO market has practically ground to a halt.
Industry leader JP Morgan Chase and Citigroup had already presented their results last week and observed the same trends. “If market conditions don’t improve then investment banking will be weak all year,” said RBC Capital Markets analyst Gerard Cassidy, looking at all major Wall Street houses. “That will then also lead to cost cuts later in the year.”
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The traders at Goldman Sachs, on the other hand, were the big stars. Retail sales increased by 32 percent in the second quarter. The consumer and wealth management division, which bundles the private banking business around the online bank Marcus, posted record revenues of 2.2 billion dollars – an increase of 25 percent compared to the previous year. Financial service provider Green Sky, which specializes in loans for larger home improvement projects and medical interventions, also contributed to this.
Goldman wants to hire fewer employees
Goldman acquired the company for $2.2 billion last year. However, the business is not profitable and is set to lose more than $1.2 billion this year, according to financial services provider Bloomberg.
Goldman’s net profit fell 47 percent to 2.9 percent. The dividend is expected to rise 25 percent to $2.50 per share in the third quarter. “I expect more volatility and uncertainty,” said CEO Solomon. That’s why he wants to hire fewer employees.
>> Read here: Angry employees and skeptical investors: the difficult mission of the new DWS boss
Bank of America benefited significantly from higher interest rates thanks to its large retail banking business. The US Federal Reserve has already hiked interest rates three times this year, and they are now in the range of 1.5 to 1.75 percent. Economists expect the Fed to hike interest rates again by 0.75 percentage points at its next meeting next week, as it did in June.
Net interest income, a key source of income for America’s second largest bank, rose 22 percent to $12.4 billion. Net interest income is the difference between the interest banks pay on deposits and the interest on loans.
US stock market expert Koch: “Results in the financial sector are much better than expected”
CFO Alastair Borthwick warned that it could rise further with interest rates as the year progresses. Consumers are still “in very good shape,” he stressed. Credit quality has improved over the past year.
According to reports, both institutes would have to be prepared for penalties in connection with text messages via private devices. The US Securities and Exchange Commission launched a large-scale investigation months ago because employees of large banks are said to have communicated with customers and colleagues outside of official channels. JP Morgan had already paid a $200 million penalty. According to industry experts, other institutes have to adjust to a similar size. This also applies to foreign banks such as Deutsche Bank.
More: The new era on Wall Street begins – major banks report significant profit slumps