All That Glitters Is Not Goldman

All That Glitters Is Not Goldman

11 months ago2 mins

Investment bank Goldman Sachs reported some seriously disappointing fourth-quarter results on Tuesday.

What does this mean?

Goldman Sachs isn’t alone in laying off workers, but it has been wielding the job-cutting ax with particular gusto compared to other Wall Street residents. And now we know exactly why: the firm missed profit expectations by a country mile, which had a lot to do with slumping investment banking and asset management fees. That’s probably why the firm’s trying its best to Ctrl Z the hiring spree it went on when dealmaking was at its height – slashing jobs and other costs left, right, and center. But that frenzy’s come a bit late in the day, and some investors might not be impressed by Goldman’s Johnny-come-lately cost-cutting antics.

Goldman compensation

Why should I care?

For markets: No rush for gold.

The world of investment banking is cyclical, and trading revenues and advisory fees ebb and flow – so by the time the results roll in, last quarter’s earnings are already ancient history. That means it’s not the quarterly sprint that counts: it’s all about the multi-year marathon. So sure, last quarter’s numbers were a disappointment – but Goldman’s a finely-tuned long-distance runner, and there isn’t any finish line in sight. Long-term shareholders know that too, which could be why the firm’s share price is still trading near all-time highs.

Goldman stock
Source: Google Finance

The bigger picture: Banks bounce back.

After the financial crisis hit, experts worried that investment banks’ best days were behind them, and predicted they’d never see pre-recession profit levels again. But the Wall Street titans clawed their way back, and of the five most famous banking firms, only Citigroup’s share price has been outstripped by the S&P 500 over the last ten years. That’s quite a feat for the industry, especially given that it seems to have ditched the profitable but questionable moves that landed it in hot water before.



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