Deutsche Bank says it's a hard time for Goldman Sachs
Deutsche Bank may be thriving, but it doesn't think that Goldman Sachs is sharing the good times. Deutsche believes Goldman to be in the grips of a challenging 2023. David Solomon may need Tom Montag to join as soon as possible.
In a note out today, Matt O'Connor, Deutsche's US banks analyst, predicts that Goldman's Q2 results won't be the best. O'Connor is forecasting second quarter earnings per share of $2.97 at Goldman, compared to a consensus of $7.51. He says "several one time hits" were meted out in Q2, including nearly $1.5bn of combined charges and losses relating to commercial real estate, weaker banking and trading revenues, and a $500m goodwill impairment from the sale of Greensky, the fintech firm feted by David Solomon in 2021, which is in the process of being divested again less than 24 months later.
While Deutsche Bank CEO Christian Sewing says the mood music has improved for Deutsche's own fixed income sales and trading revenues, the change in tempo is too late for Goldman's second quarter. O'Connor is predicting a 31% year-on-year fall in Goldman's fixed income sales and trading revenues in Q2. He also predicts that equities revenues at Goldman will fall by 18% and thinks investment banking fees at the firm are likely down 18%.
Overall revenues at Goldman are expected to decline nearly 20% as a result. And O'Connor suggests Goldman's costs are less flexible than once they were. He expects non-compensation costs at GS to fall by less than 1%. Even with bigger (and unspecified) cuts to compensation spending, he predicts overall costs will fall by half the drop in revenues in Q2.
Goldman's earnings will therefore take the hit. It doesn't help that severance payments are being made to all the expensive managing directors being let go.
What should you do if you want to leave Goldman now? You could, perhaps, try Deutsche Bank instead. Sewing is still ebullient, and head of DB's investment bank Fabrizio Campelli has said that although he has hiring fatigue after adding 50 bankers this year, he's not entirely at the end of the recruitment road. Campelli does want to add people on "particularly attractive" terms, though, so Goldman people's expectations may need to be tempered.
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