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Goldman Sachs Expected To Cut Hundreds Of Jobs This Month

Michael M. Santiago

Goldman Sachs (NYSE:GS), the last of the “too-big-to-fail” U.S. banks to announce Q3 earnings on Tuesday, will likely be increasing its provision for credit losses to prepare for a slowing economy, as has its peers.

Investment banking activity has been slow in 2022. Higher interest rates and volatile markets have put a damper on equity and debt issuances, and M&A activity has dropped as well. That’s likely to weigh on the company’s earnings.

Goldman (GS) is expected to post Q3 GAAP EPS of $7.68, down from $7.73 in Q2 and $14.93 in Q3 2021. In the past nine quarters, the company’s EPS have exceeded the consensus estimate in all but one quarter, Q4 2021.

With capital markets subdued, “global markets remains the standout segment as volatility and client engagement across FICC (fixed income, currencies and commodities) remains solid,” Jefferies analysts Daniel T. Fannon and Ken Usdin said in a note after they met with Goldman (GS) CFO Denis Coleman.

Still, they see GS in a good position once M&A activity picks up. Coleman told the Jefferies analysts that he’s more optimistic about smaller transactions, in the range of $1B-$10B, than on mega deals.

The company’s provision for credit losses is expected to increase to $755M from the $667M it took in Q2 2022, according to the Visible Alpha consensus.

With the Federal Reserve hiking rates to slow inflation, the bank’s net interest income should benefit. Q3 net interest income is expected to rise to $1.77B, according to Visible Alpha, from $1.73B in Q2.

With inflation top of mind, operating expenses will also be in focus. The company’s total operating expenses are expected to fall to $7.17B in Q3 vs. $7.65B in Q2, with compensation and benefits expense accounting for $3.40B vs. $3.70B in the prior quarter.

Looming over the Wall Street stalwart is a report that it will reorganize its business, merging its investment banking and trading businesses into one unit, and its asset and wealth management businesses into another. That announcement is expected in coming days, the WSJ reported, citing people familiar with the matter.

Its Marcus consumer digital bank will become part of Goldman’s (GS) wealth business “as a more curtailed effort,” Bloomberg reported. In August, Goldman was said to consider limiting the rollout of new checking accounts at Marcus as it continues to rack up losses.

Goldman (GS) will issue its Q3 results at about 7:30 AM ET. Its conference call is set for 9:30 AM.

SA contributor Pearl Gray Equity and Research is cautious on Goldman (GS) as its ~40% trading income mix “is a concern in today’s market.”

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