Goldman Sachs (GS.N) chief David Solomon indicated on Wednesday that the bank anticipates a “slightly softer” third quarter for its fixed-income, currencies and commodities (FICC) business, despite a relatively strong performance in its equities division. Mr Solomon also cautioned investors to brace for a more subdued period in the firm’s investment line, especially compared to the significant activity observed in the second quarter. These remarks prompted a nearly 4% slump in the Wall Street bank’s shares, which underperformed other financial institutions already weaker after the Federal Reserve’s interest rate hike.
Goldman Sachs is a global investment bank and financial services company that offers a broad range of services, including investment banking, securities, and investment management. The firm’s FICC segment has experienced volatility this year, surging 32% in the second quarter but declining 10% in the first quarter due to rate business impacts from geopolitical tensions. Banking analyst Sean Dunlop from Morningstar Research noted that Goldman’s outlook was not entirely unexpected. “We’re not particularly surprised, and had underwritten a 12% sequential decline in investment banking revenue and an 11% sequential decline in FICC revenue for Goldman in Q3,” Mr Dunlop stated, adding that “slightly softer” might even be more constructive than their own forecast.
Broader industry trends also indicate headwinds; Dealogic data shows global investment banking revenue fell to $21.194 billion in the third quarter through September 15, down from $23.765 billion a year prior, impacted by slowdowns in mergers and acquisitions and debt raising. Further affecting the firm’s financials, Mr Solomon highlighted higher transaction expenses and accelerated technology investments. These factors are expected to push non-compensation expenses up by $500 million. Additionally, provisions for bad debt are anticipated to creep up due to “a couple of idiosyncratic things,” though specific details were not provided.
