Goldman Sachs: top adviser learns that most M&As do not pay off for buyers

Mergers and acquisitions are the bread and butter of Goldman Sachs earnings. But a deal market in the doldrums has left its executives and shareholders short on calories.

The investment bank said on Tuesday that its overall first-quarter revenues and profits fell 5 per cent and 18 per cent, respectively, year on year. A record-setting 2021 seems a distant memory after advisory revenue fell 27 per cent.

Goldman’s own ambitions have withered, too. Chief executive David Solomon admitted that GreenSky, a consumer lender that it acquired for $2.2bn just a year ago, might not fit into the bank after all.

No surprise, really. Goldman has already conceded that its consumer lending push misfired. On the day came word that it had sold $1bn of consumer loans its Marcus unit had originated. As Goldman tries to reset its business, its legacy strength in institutional businesses remains under pressure — fixed income business revenue fell almost a fifth.

Meanwhile peer Bank of America on the same day confirmed what JPMorgan, Wells Fargo and Citigroup had said recently. Loan growth and lending profits have not suffered from either an economic slowdown or the implosion at regional banks such as Silicon Valley Bank.

In this sense, Goldman’s original foray into consumer banking makes more sense, given how lucrative servicing individual Americans can be. Goldman itself has not completely abandoned this area. It announced a new high interest rate savings account product for customers who used the credit card that it markets with Apple.

Despite some unsettled businesses, Goldman reported a healthy return on equity of nearly 12 per cent. It generated meaningful asset management fees, while income from equity investments has rebounded after last year’s decline in asset values.

Goldman has not really benefited from any wobbles in the banking sector. Its own consumer assets will be sold at fire sale prices. Mergers and IPOs will eventually resume, enabling Goldman to reassert its dominance. Yet wasting resources on the GreenSky acquisition almost certainly contributed to the sharp job cuts at Goldman.

Perhaps the remaining investment bankers there will have learned some lessons. If so, they can offer more humility in their advice to clients about M&A’s impact on buyers.