Wall Street giant Goldman Sachs Group Inc announced a massive corporate shakeup, reporting a 44% slump in the third-quarter net profits on Tuesday, 18th October
The three-unit restructuring is said to achieve three goals- increase management fees, enlarge the Wall Street share it seizes from rival firms, and expand its digital platform to serve large clients with complex needs.
Wall Street giant Goldman Sachs Group Inc announced a massive corporate shakeup, reporting a 44% slump in the third-quarter net profits on Tuesday, 18th October. The bank unveiled yet another extensive overhaul since 2020, stating it will now have three operating segments: a merged investment banking and trading unit, an asset and wealth management unit, and a third newly constituted platform solutions unit to buoy up its digital offerings.
The global investment bank publicized their Earnings Per Share is $8.25 on a net income of $3.1bn for the quarter ended 30th September, as against experts’ estimates of $7.75 per share on a net income of $2.9B. The total revenue fell by 12% to $11.78B in the third quarter, following a rise of 17% in operating expenses and a higher provision of bad debts. Competitor firm JPMorgan reported an EPS of $3.12 on revenue of $32.7B, beating analysts’ prediction of EPS of $2.92 on $32.13B. Amidst the aggressive increase of the Federal reserve rate, the Russian aggression, and sluggish economic growth, the investors have, however, surged trading activity succoring the bank’s fixed income, currency and commodities division.
Goldman Sachs Chairman and CEO David Solomon said, “Goldman Sachs’ third quarter results reflect our global franchise’s strength, breadth and diversification. Against the backdrop of uncertainty and volatility in the markets, we continue to manage our resources prudently and remain focused on risk management as we serve our clients.”
The Wall Street titan unifying the investment banking (the firm’s crown jewel) and trade divisions aims to boost income from its fee-based businesses and to sideline the loss-making consumer units. Solomon mentions that the bank had realized that “going to a much broader set of potential customers doesn’t play to our strengths.” The three-unit restructuring is said to achieve three goals- increase management fees, enlarge the Wall Street share it seizes from rival firms, and expand its digital platform to serve large clients with complex needs.
Marcus, the bank’s consumer banking business, was a successful low-cost funding mechanism to cumulate $100B in customer deposits. Instead of strengthening retail relationships, it will be molded into the bank’s private asset and wealth management unit. Goldman’s credit card partnerships with Apple and General Motors that were previously under Marcus will now be overseen by its newly formed platform solutions unit. Additionally, this unit will house the cloud-based services offered by the bank to large companies aiding with cash management and making swift payments worldwide.
“Today, we enter the next phase of our growth, introducing a realignment of our businesses that will enable us to further capitalize on the predominant operating model of one Goldman Sachs as we better serve our clients,” Solomon says in a press release accompanying the bank’s reports on Tuesday balling at the retreat from an earlier goal of creating a client-centric organizational structure.
The Street’s powerhouse bank recently underwent a global job cut in September. The global investment bank generally trims about 1%-5% of its underperforming staff every year.
The investor community reacted positively to the newly brought revamp. Shares rose 3.3% in early trade to $316.89 per share. Chief market strategist at B. Riley Wealth, Art Hogan, says, “The street certainly seems to view the Goldman reorg as a positive and well thought-out strategy.”
Amidst the unsettled economy, Solomon mentions that the short-term outlook will supposedly remain unsettled and that multiple companies are holding off on big decisions until they can better predict the future. The question facing the Chairman and CEO of Goldman Sachs is if the restructuring will persuade investors to impute an ascended valuation to his bank, and the answer will unfold in the years to come.