Goldman Sachs unveils revamp as profit shrinks

© Reuters. FILE PHOTO: The logo for Goldman Sachs is seen on the trading floor at the New York Stock Exchange (NYSE) in New York City, New York, U.S., November 17, 2021. REUTERS/Andrew Kelly

By Saeed Azhar, Niket Nishant and Noor Zainab Hussain

NEW YORK (Reuters) -Goldman Sachs Group Inc will reorganize its business into three units and scale back ambitions for its consumer bank, it said on Tuesday, as the Wall Street giant reported a smaller-than-expected 44% slump in third-quarter profit.

The bank, which unveiled its biggest business overhaul since 2020, will now have three operating segments - asset and wealth management, global banking and markets, and platform solutions.

Goldman said its consumer unit will be folded into two separate businesses - wealth management and the newly-created platform solutions unit. The money-losing consumer unit Marcus was placed under its wealth business while the platform solutions unit will include GreenSky, the fintech lender Goldman bought in a $2.2 billion deal.

Goldman Sachs (NYSE:GS) CEO David Solomon told an analyst briefing that the bank was pulling back on some of the aspirations for its consumer bank, which currently does not make money.

"We are making it clear that we're pulling back on some of that now," he said. "I think one of the big learnings over the last few years is that we're better to play to our strengths."

Investors positively reacted to the changes. Shares rose 3.3% in early trade to $316.89 per share.

"The street certainly seems to view the Goldman reorg to be a positive and well thought-out strategy," said Art Hogan, chief market strategist at B. Riley Wealth.

The reshuffle comes as the investment bank seeks to boost its income from fee-based businesses at a time when rising interest rates have dented valuations and deal-making.

Goldman Sachs outlined leadership changes for the new units, with Marc Nachmann, currently global co-head of the global markets division, becoming global head of the asset and wealth management division.

"Against the backdrop of uncertainty and volatility in the markets, we continue to prudently manage our resources and remain focused on risk management," Solomon said in a statement.

MIXED EARNINGS

The bank rounds out a mixed quarter for big U.S. banks, in which choppy capital markets and slowing economic growth weakened investment banking.

"Rising borrowing costs, which are boosting net interest income, are working as a sort of parachute for the banks, while the slowing economy is still robust to handle the pain," said Guido Petrelli, Founder and CEO of Merlin Investor.

A jump in interest rates typically translates into higher profitability for banks, which earn on the difference between interest paid on deposits and that collected on loans.

Goldman posted a profit of $8.25 per share in the quarter ended Sept. 30, easily beating analyst's average estimates of $7.69, according to Refinitiv data. Rising borrowing costs resulted in a 31% surge in net interest margin.

Total revenue fell 12% to $11.98 billion in the quarter.

In the consumer and wealth management business, Goldman saw revenue jump 18% to $2.38 billion in the quarter, reflecting higher demand for loans and higher fees from managing assets.

Trading revenue in the third quarter surged 11% to $6.20 billion, as a 41% jump in fixed income, currency and commodities revenue offset declines from equity trading revenue, which was down 14%. That reflected investors boosting trading activity in the face of aggressive rate increases by the Federal Reserve and the Ukraine war.

Dealmaking, however, slowed in the quarter, casting a pall over some of Goldman's most lucrative businesses.

Goldman's investment banking revenue, came in at $1.58 billion, down 57% from last year, reflecting a decrease in M&A and equity and debt underwriting.

After a round of job cuts in September, Solomon said Goldman has no such further plans.

"It's time to be cautious," he said in an interview on CNBC, referring to the state of the economy.

"You have to expect that there's more volatility on the horizon now. That doesn't mean for sure that we have a really difficult economic scenario. But on the distribution of outcomes, there's a good chance we have a recession in the United States," he said.