Goldman Sachs consumer bank: revenues of $433m, writedowns of $972m

If you want to annoy a Goldman Sachs macro trader, there's a shortcut to apoplexy: mention the consumer bank. The revenues generated by Goldman's macro desks are being drained by the retail bank once feted by CEO David Solomon.

Today's results tell the sorry tale. In the fourth quarter, Goldman's consumer bank generated revenues of $433m. However, the firm said $972m of provisions for credit losses in the fourth quarter "primarily reflected growth in the credit card portfolio," which sits in the consumer bank. Instead of stabilizing revenues and profits as hoped, the consumer bank has become a huge drag.

At the same time, Goldman's fixed income traders outperformed rivals everywhere but Bank of America last year. Revenues from fixed income currencies and commodities (FICC) "intermediation" (sales and trading) were up 50% year-on-year in the fourth quarter; revenues from FICC financing solutions were up 28%. For 2022 as a whole, combined revenues from the two areas were up 38%, second only to Bank of America's 49%. 

Goldman's macro (rates and FX) traders were behind its FICC phenomenon, as were its commodities traders. Revenues were "significantly lower" in mortgage trading and slightly lower in credit trading. Compared to 2021, they were also dramatically lower in M&A, equity capital markets (ECM) and debt capital markets (DCM) as per the chart above, even though M&A revenues were the third highest on record. 

With investment banking misfiring and the consumer bank leaking funds, profits at Goldman fell two thirds in Q4. The return on equity at the firm declined to a risible 4.4%. 

In the circumstances, there are some signs that Goldman might be trying to keep its bankers and traders happy. Headcount across the firm was 10% higher in the fourth quarter of 2022 than the fourth quarter of 2021 (reflecting the possibly misplaced addition of thousands of consumer banking employees at Greensky, a fintech loan consumer loan provider acquired by GS last year, plus employees at asset management firm NN Investment Partners). But spending on compensation was higher still and rose 16% year-on-year in Q4. Was the bonus pool supplemented in the final months of the year? Even if it was, compensation spending for the year as a whole was down 15%. 

Goldman has good reason to pay its traders. What happens in 2023 if investment banking revenues remain low and if trading revenues fail to provide a cushion for writedowns elsewhere in the business? It's not just consumer banking that's the problem: the firm said today there had been, "net markdowns on acquisition financing activities," AKA leveraged loans in Q4 too. Accordingly, revenues earned from 'other principal transactions' fell 80%. 

Goldman needs its traders. For all the ebullience of Goldman's dealmakers there's little sign of recovery; the firm said today that its deal backlog in Q4 2022 "decreased significantly" compared to the prior year's quarter. Trading is keeping the firm afloat, and traders will expect to be rewarded as a result. 

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