Written by: Susannah Streeter | Hargreaves Lansdown
- Goldman Sachs Group first-quarter profits fall19% to $3.23 billion as investment banking fees are hit
- Bank of America profits rise 15% to $8.2 billion as it benefits from higher interest rates
- Uncertain times ahead for both banks as market volatility continues amid deposit flight
A tale of two very different banking giants has unfolded as Goldman Sachs’ was hit by a dent in dealmaking, while the good times rolled for Bank of America, which reaped big windfalls from higher interest rates.
The underlying story betrays more trickier times ahead for both banks. Volatility is expected to continue to affect the markets, which Goldman’s business is so highly interlinked with, while Bank of America’s net interest margins are set to be eroded as more customers scarper in the search for higher returns elsewhere, forcing it to offer better rates. Inflows from the worried customers of smaller banks, following SVBs collapse, haven’t changed the overall direction of deposits seeping away into money market funds offering higher yields.
Goldman had rolled the dice to get into the consumer banking game, but it was a gamble which hasn’t paid off. The bank offloaded part of its Marcus branded loans in the first quarter, booking a $470 million loss, with the rest of the portfolio now marked up for sale. It’s still unclear exactly what will happen to other parts of its consumer platform but for now its Apple partnership appears to be going strong, offering a new rate on savings of 4.15% as competition intensifies for deposits.
Bank of America sees no cracks appearing in consumer resilience, with credit quality strong. But it has multiplied the amount it has set aside for potential losses on loans in the quarter to around $930 million, and concerns will linger about the risks of bad debt rising, if as it expects, the US economy heads into recession.