Despite a rise in first quarter revenue, Goldman Sachs’ Consumer & Wealth division announced an 11 percent drop in net income.
Revenue grew 21 percent in Sachs’ wealth unit to $1.49 billion thanks to higher average assets under supervision and transaction volume gathered from higher management fees collected from Goldman’s longtime goldmine of wealthy retail investors and fees from the less affluent clients it acquired through its purchase of United Capital last year.
In early January of this year, Goldman created the Consumer & Wealth sector.
“Management and other” fees were the leading source of the new unit’s revenue, comprising 64 percent of revenue. Meanwhile, the sector’s consumer lending and private banking businesses declined 10 percent.
Goldman’s 11 percent earnings drop to $72 million in the business was in part due to a $168 million addition to the unit’s loan loss reserves. The multinational investment bank and financial services company has set aside $937 million across the company for potential bad loans.
Bank of America, JPMorgan Chase, Citigroup, and Wells Fargo have announced a cumulative $24 billion addition to their reserves as the banks all prepare for a credit fallout to stem from the coronavirus crisis.
The overall picture for Goldman Sachs is even worse. The company’s first-quarter profit plunged 46 percent to $1.21 billion from the first quarter of 2019. Its equity investment portfolio and asset management division sustained particularly heavy damages.
Since David Solomon took over as CEO in 2018, Goldman has sought to diversify its revenue by focusing more attention on main street consumers, making the wealth segment increasingly important.
Before the coronavirus crisis devastated global economies, Goldman has announced plans to grow its wealth advisor headcount by 250 over the next three years.
Nonetheless, Solomon plans to remain steady on the the course: “While January seems more distant under these circumstances than the ten or so weeks that have passed, the strategic directions we laid out for the firm remain no less compelling,” he stated. “Strengthening our core businesses, expanding new and adjacent businesses, and operating with greater efficiency remain ever important to the firm.”
