Goldman Sachs: caution abounds both internally and externally

In 2021, junior analysts at Goldman Sachs used PowerPoint slides to detail their grievances stemming from overwork during the height of the pandemic. Message received. Across Wall Street, pay and perks were boosted to keep the bantam bankers happy. Expect a little less moaning from the junior ranks in future.

Times have changed. On Monday, during its second-quarter earnings call, Goldman Sachs hinted it would bring back its annual cull of underperformers paused since 2019.

Here’s why. Group revenue fell 23 per cent, quarter over quarter. Notably, equity capital markets fees plummeted by 89 per cent. While the Goldman franchise remains dominant, last year’s performance was one that will probably not repeat itself any time soon. That makes the 2022 downturn look ever more stark. All staff at the bank must suddenly feel more vulnerable than entitled, or even empowered.

An aberrational mother lode of M&A and underwriting fees in 2021 has obscured the strategic shifts in Goldman’s overall business, which the bank says are coming through now. Management fees from its private investing business exceeded $1bn in the quarter despite hefty mark-to-market losses because of the drop in asset prices in the quarter. Revenues in its consumer and wealth management units also hit record levels, though, as with private investing, these were partially boosted by acquisitions.

And even as Goldman’s stalwart investment banking business has suffered so far this year, fixed income and equity trading, another legacy unit, prospered in the volatile second quarter. The bank said the diverse units provided balance to results in an otherwise difficult time.

Wall Street still may have doubts about how all the old and new pieces fit together. Goldman shares did jump 3 per cent on Monday, but remain down a fifth for the year, trading just at book value. A cautious tone to its results will not only have sent a message to external audiences but perhaps to an internal one as well.