Goldman Sachs cut pay by 20 per cent in the first quarter as its business came under pressure from tough conditions for its trading business, lower private equity gains and lower transaction revenues in its investment and lending divisions.
The Wall Street bank reported net revenues of $8.8bn for the first quarter, in line with analysts’ expectations but down 13 per cent from a year earlier, as almost all of its key divisions posted lower levels of activity. Net income fell 21 per cent year on year, to $2.25bn.
But the bank still managed to beat earnings per share forecasts, delivering $5.71 against the $4.89 expected, after cutting operating expenses by 11 per cent including the 20 per cent in compensation and benefits.
“We are focused on new opportunities to grow and diversify our business mix and serve a broader range of clients globally,” said chief executive David Solomon, who is in the later stages of a ‘front to back’ review of all of Goldman’s businesses.
“With improving momentum across our businesses, we are confident that Goldman Sachs will generate attractive returns for our shareholders.’’
Goldman promised to provide a “comprehensive strategic update” in the first quarter of 2020.
Revenues in fixed income trading — an area where Goldman has struggled in recent years — fell 11 per cent year on year to $1.84bn, better than the 22 per cent fall in fixed income trading revenues reported by JPMorgan Chase last week.
Goldman’s equities trading revenues were 24 per cent lower year on year, at $1.77bn, “primarily due to significantly lower net revenues in equities client execution, particularly in derivatives, compared with a strong prior year period”, the bank said. JPMorgan’s equities revenues were down 16 per cent for the year.
Investment banking — which covers everything from advising clients on M&A to dealmaking — was up 1 per cent year on year to $1.8bn, including a 51 per cent rise in the financial advisory business driven by strong M&A volumes.
Litigation reserves for the quarter were $37m, down $7m from the same period in 2018, suggesting the bank has not made material new provisions to deal with the fallout from Malaysia’s 1MDB case, for which it is being sued in Malaysia and facing potential action from the US justice department. The bank booked $516m of litigation reserves in the fourth quarter.
Goldman shares have gained almost 21 per cent so far this year, outperforming the 16 per cent rise in the KBW US banks index and closest rival Morgan Stanley, which is up almost 16 per cent over the same period, but underperforming the 26 per cent rise in Citigroup’s shares in 2019 to date.