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Goldman (GS) Q2 Trading View Weak Amid Activity Cooldown

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At an industry conference, The Goldman Sachs Group, Inc.’s (GS - Free Report) president and chief operating officer, John Waldron, revealed that the firm expected trading revenues to decline 25% year over year in second-quarter 2023.

"The macro backdrop is extraordinarily challenging,” he added. This has resulted in sluggish capital market activity, and muted equities and fixed-income activity levels than a year ago.

Tougher comps from the prior year are also expected to weigh on the company’s year-over-year performance in the Global Banking and Markets segment in second-quarter 2023. Rising interest rates and a rise in commodities business due to volatile energy markets owing to the war in Ukraine, drove higher market activity levels in second-quarter 2022. This propelled revenues in the market-oriented businesses.

Amid the challenging macroeconomic scenario that has affected revenues, GS is making efforts to reduce expenses to navigate the choppy waters. Particularly, the company aims for a new round of "targeted" employee reductions, which will help it achieve the previously stated goal of reducing $600 million in payroll compensations.

The investment banking (IB) giant, GS, is likely to cut fewer than 250 jobs across seniority levels, including partners and managing directors. This comes after Goldman trimmed its headcount by about 3,200 in the first quarter in its biggest round of layoffs since the 2008 financial crisis. Last year, the company cut about 500 jobs.

The move also highlights the increasingly gloomy outlook for the IB business, as rising interest rates have affected merger activity and initial public offerings. Notably, the company’s IB fees were $1.58 billion in first-quarter 2023, 26% lower year over year. Also, its IB fee backlog decreased sequentially.

The company is also narrowing its consumer businesses, as indicated by the $1-billion loan sale from its consumer bank, Marcus, and its intention to further reduce the portfolio and sell its fintech business, GreenSky. The company may recognize an impairment on $500 million of goodwill related to the consumer platforms.

Over the past six months, shares of GS have declined 16.9% compared with the industry’s fall of 19.3%.


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Currently, GS carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

GS aside, Wall Street banks Morgan Stanley (MS - Free Report) and Bank of America (BAC - Free Report) are also signaling a weak quarter for their trading businesses.

Morgan Stanley’s co-president Andy Saperstein recently said that the firm expected a year-over-year decline in its trading and IB revenues for the second quarter of 2023.

Saperstein believes that because of a more challenging economic environment, Morgan Stanley’s sales and trading “results will be notably down year over year versus a strong second quarter last year,” while “investment banking is also very challenged."

Bank of America expects IB fees and trading revenues to be broadly flat in second-quarter 2023 on a year-over-year basis.

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