Goldman sees Q3 trading revenue declining 10%

At the Barclays Financial Services Conference, Goldman Sachs' CEO David Solomon provided key insights into the bank’s current performance and outlook, particularly focusing on trading revenue and strategic shifts. Solomon noted that the bank’s trading revenue is expected to decline by approximately 10% in the third quarter. This drop is attributed to a tough year-over-year comparison, as the prior year’s trading results were particularly strong, and challenging market conditions in August, especially in fixed-income trading. The dip in trading revenue signals a more difficult environment for Goldman, as FICC products, which had driven strong performance in previous quarters, struggled in the third quarter.

Solomon also commented on the overall economy, noting that the U.S. is in "reasonable shape." He expressed confidence that credit conditions would remain steady, although he acknowledged that the macro environment has been more challenging, particularly in August. Despite these challenges, Solomon remained optimistic about the prospects for investment banking, which has seen a rebound thanks to improved conditions in both debt and equity underwriting.

In terms of business restructuring, Goldman Sachs continues to narrow its focus on its core areas of investment banking, asset management, and trading while stepping away from consumer banking. Solomon highlighted the bank’s decision to sell off its GM Card business and a separate portfolio of loans, part of an ongoing effort to unwind its consumer operations. This pivot has been costly, with Goldman expecting a $400 million pre-tax hit in the third quarter due to these divestitures. The decision to reduce exposure to consumer banking is in line with Goldman's strategy to refocus on higher-margin businesses.

The sale of these consumer-focused units reflects Goldman’s broader retreat from its foray into retail banking, which began under Solomon’s leadership but faced significant regulatory and financial headwinds. The GM Card business sale is part of the bank’s ongoing effort to wind down its retail lending operations, which includes earlier moves such as the sale of GreenSky, a home improvement lender. These divestitures will impact revenues in the short term but are seen as necessary to streamline Goldman’s operations.

Despite the expected decline in trading revenue, Solomon pointed out that investment banking activity has improved meaningfully, driven by a rebound in equity capital markets, though the IPO market remains below expectations. He was hopeful that dealmaking, particularly private equity-led deals, would bounce back later in the year or into 2025. This improvement in investment banking, along with a potential lowering of interest rates, offers some optimism for the bank’s performance in the coming quarters.

In conclusion, while trading revenue is set to decline, Goldman Sachs is focused on repositioning itself away from consumer banking and towards its traditional strengths in investment banking and asset management. The third quarter is expected to be a mixed one for the bank, with positive developments in investment banking being offset by weaker trading results and a $400 million hit related to its consumer divestitures. The market reaction has been cautious, with investors digesting the potential for further near-term revenue headwinds.