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Goldman Sachs Reveals A Rejig Policy As Profits Fall

Goldman Sachs Reveals A Rejig Policy As Profits Fall
With the Wall Street giant bank Goldman Sachs Group Inc reporting a lower than expected, 44 per cent drop in profits for the third quarter profit on Tuesday, the lending giant also unveiled a plan to reorganize its business into three units in its biggest overhaul since 2020.
The bank's operations will now be divided into three divisions: asset and wealth management, global banking and markets, and platform solutions. Marcus, the company's money-losing consumer unit, was absorbed into its wealth business.
In premarket trading, shares rose 2.5 per cent to $314.50.
"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 reorganization comes as the investment bank seeks to increase revenue from fee-based businesses at a time when rising interest rates have hampered valuations and deal-making.
Goldman Sachs announced new leadership for the new units, with Marc Nachmann taking over as 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," Chief Executive David Solomon said in a statement.
The bank caps off a mixed quarter for big US banks, with choppy capital markets and slowing economic growth weighing on 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.
Dealmaking slowed in the third quarter, putting a damper on some of Goldman's most profitable businesses. Rising borrowing costs, on the other hand, resulted in a 31 per cent increase in net interest margin.
According to Refinitiv data, this contributed to the bank's profit of $8.25 per share in the quarter ended Sept. 30, easily beating analysts' average estimates of $7.69.
In the third quarter, total revenue fell 12 per cent to $11.98 billion.
Goldman's investment banking revenue was $1.58 billion, a 57 per cent decrease from the previous year, due to a decrease in M&A and equity and debt underwriting.
Following a round of layoffs in September, Solomon stated on Tuesday that Goldman has no further plans.
"It's time to be cautious," Chief Executive David Solomon 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.
In the face of aggressive Fed rate hikes and the Ukraine war, investors increased trading activity, benefiting the bank's fixed income, currency, and commodities divisions.
A rise in interest rates usually results in increased profitability for banks, which profit from the difference between interest paid on deposits and interest collected on loans.
Goldman's revenue in the consumer and wealth management business increased 18% to $2.38 billion in the quarter, reflecting higher demand for loans and higher fees from asset management.
Goldman has announced the separation of its consumer unit into two separate businesses: wealth management and the newly created platform solutions. GreenSky, the fintech lender Goldman acquired for $2.2 billion, will be part of the Platform Solutions unit.
Trading revenue increased 11 per cent to $6.20 billion in the third quarter, as a 41 per cent increase in fixed income, currency, and commodities revenue offset a 14% decline in equity trading revenue.

Christopher J. Mitchell

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