Goldman’s struggles continue as Bank of America boosted by higher interest rates

Goldman Sachs’ struggles continued today after it reported a slowdown in its investment banking division, with overall revenues coming in below market expectations.

Goldman Sachs’ revenue fell five per cent to $12.2bn, lower than market expectations, while its profit fell 18 per cent year-on-year to $3.1bn.

Its investment banking revenue remained subdued amid the continued slump in dealmaking, while Goldman’s trading income also came in below expectations despite strong performances in this area from other US lenders.

The bank’s asset and wealth management was the strongest performer, delivering a 24 per cent increase in revenue.

Goldman’s controversial consumer banking division also weighed on its performance. The bank’s revenue figures included a $470m hit from the partial sale of the Marcus loans portfolio as well as the transfer of the remainder of the portfolio to held for sale.

Although the division imposed significant costs on the bank, there are signs that its performance may be improving after revenue in the division more than doubled on the same quarter last year to $564m.

Chief executive and chair David Solomon focused argued the results demonstrated the “resilience of Goldman Sachs and the nation’s largest financial institutions” in the face of a “real-life stress test.”

“Our deeply rooted risk management culture, strong liquidity and robust capital position enabled us to continue to support our clients and deliver solid performance,” he said. 

Shares in Goldman Sachs were trading 3.5 per cent lower in pre-open trading.

However, Bank of America first quarter results, also announced today, were significantly stronger than what the market expected.

Revenue climbed to $26.3bn from $23.2bn last year. This helped its net income to climb to $8.2bn with a diluted EPS of $0.94, higher than market expectations. 

The strong performance came as a result of higher interest rates. The bank’s net interest income climbed 25 per cent while non-interest income rose one per cent thanks to strong trading revenue. 

Both of Bank of America’s largest divisions, consumer banking and global banking, saw the benefits of higher interest rates. Profit in consumer banking climbed four per cent while global banking saw a 48 per cent increase despite falling investment banking fees. 

The lender’s trading revenues were also strong, continuing the trend seen last week, particularly at Citi. At Bank of America, fixed-income traders saw a 27 per cent increase in revenue. 

Chief financial officer Alastair Borthwick said the bank’s results reflected “strong net interest income improvement coupled with one of our best quarters of sales and trading.”

However, average deposits at Bank of America slipped to $1.89bn from $1.93bn at the end of last year and $2.05bn in the same quarter last year. 

Deposits are in focus across US lenders as 2023 has seen a flood of funds coming into higher-yielding money market funds. This trend only accelerated with the collapse of SVB taking away some of the bank’s cheapest source of funding.

The results come as the US banking sector is under intense scrutiny following the collapse of Silicon Valley Bank. 

Last week JP Morgan reported that its profits had increased over 50 per cent while Wells Fargo and Citi also beat expectations. Like Bank of America, the lenders continued to be boosted by higher interest rates.