Earnings season has kicked off and all eyes are on Goldman’s quarterly report coming out this Thursday. Long regarded as the most formidable of the investment banks, some analysts predict Goldman’s profits will slump to only its second-ever quarterly loss since it went public in 1999, reports London’s Telegraph.
What does this mean for investment banking jobs, salaries, bonuses at other banks? Is Goldman, along with the other bulge-bracket banks, fighting against new and threatening “currents” that will forever limit growth?
Like many of the other banks, Goldman’s oversized profits for the past 15 years were driven by its capital markets and proprietary trading businesses. Now, with the Dodd-Frank financial reforms moving along, they’ve had to cut back dramatically on that part of their business.
There’s also a swirl of anti-banking sentiment rising, both in government and on the streets, as the Occupy movement expands around the world.
While one quarter’s results do not spell doom for Goldman, a former senior Goldman partner told the Telegraph that the firm is facing headwinds. “In the current environment the investment banking model doesn’t work. All banks have prospered in the last decade with supernatural profits because of the securities business. But thanks to regulatory intervention and low volumes, those days are now over.”
On the flip side, a Goldman insider says it’s all just business as usual, and we need to think long-term. “The reality isn’t complex, we match people that have capital with people that need capital, whether that’s through an IPO, an M&A deal or a trade. We play an intermediary role and this is a business that’s been here a very long time and will not disappear any time soon.”
Okay, so we can agree the days of big trading profits may be over for now. And that no bank is going to be as profitable as it was before Dodd-Frank, according to author and former banker William Cohan. But that doesn’t mean Goldman, or investment banking jobs, are going away.
“Goldman’s great strength is that they’re the perfect Darwinian machine for making money,” says Cohan. “Once the dust settles, they’ll figure out the new regulatory, economic and political environment.”
What about you? Does the current political and public climate influence your goal of landing an investment banking job? Add your comments below.