Prof G Markets: Goldman’s Earnings Slump, an ETF for Options Trading, and Fractional Jet Ownership

Goldman Challenges

Goldman Sachs is facing significant challenges as its reliance on investment banking becomes a liability in the current market climate. Scott Galloway highlights that investment banking revenue for Goldman has dropped to less than half of what it was two years ago, now accounting for only 13% of its revenues, compared to 27% in Q3 2021 1. This decline is stark compared to JPMorgan and other banks with robust consumer divisions, which have seen strong earnings due to rising interest rates 2.

If your business is largely skewed towards investment banking and M&A, you did poorly. M&A volume is at multi-decade lows.

--- Scott Galloway

Goldman's struggles are compounded by its unwinding of consumer banking efforts, leading to its eighth consecutive profit decline 2.

   

Interest Rate Effects

The impact of rising interest rates has been a boon for banks with strong consumer divisions, significantly boosting their net interest income. Scott Galloway explains that banks have been able to charge more for loans and mortgages, leading to higher net interest income, while the interest paid on customer deposits remains low 3. This disparity has allowed banks like JPMorgan to report strong earnings, contrasting sharply with Goldman's performance, which lacks a substantial consumer banking arm 1.

It's a great time to be in the business of consumer lending.

--- Scott Galloway

This environment underscores the strategic advantage of having a diversified revenue stream in banking.