Goldman Sachs boss David Solomon cautioned Tuesday there’s a “good chance” that the US economy falls into a recession – a warning that came the same day the bank confirmed a sweeping overhaul of its corporate structure.
Solomon gave an ominous outlook for the US economy shortly after Goldman reported third-quarter earnings that topped Wall Street’s expectations. The CEO suggested businesses should dial back on their aggression during the expected period of economic volatility.
“I think it’s a time to be cautious, and I think that if you’re running a risk-based business, it’s a time to think more cautiously about your risk box, your risk appetite,” Solomon said during an appearance on CNBC’s “Squawk Box” on Tuesday morning.
“I think you have to expect that there’s more volatility on the horizon now,” Solomon added. “That doesn’t mean for sure that we have a really difficult economic scenario. But on the distribution of outcomes, there’s a good chance that we have a recession in the United States.”
Solomon is the latest bank executive to warn of looming headwinds for the US economy. Last week, JPMorgan Chase CEO Jamie Dimon predicted a recession was likely within six to nine months due to “very, very serious” economic obstacles such as inflation and the Russia-Ukraine war.
Separately, a Bloomberg Economics model released Monday showed a 100% probability of a recession within the next year – even as President Biden and other top administration figures continue to insist a downturn is still avoidable.
Later in the interview, Solomon weighed in on the possibility of a sustained downturn that could weigh on stocks for years rather than months. He argued government policy will play a key role in determining whether that scenario can be avoided.
“In an environment where inflation is more embedded and growth is slower, asset appreciation will be tougher. Are we going to get rooted in that kind of a decade-long scenario? I don’t know,” Solomon said. “The policy decisions we make from here will have an impact.”
Solomon pointed to energy and immigration as key areas the government should seek to address with policies that last through administrations.
The banking giant reported earnings per share of $8.25 on quarterly revenue of $11.98 billion, with both figures coming in better than analysts projected. Nevertheless, profit was down 43% compared to the same period one year earlier, while revenue dropped 12% year-over-year.
Goldman Sachs was up nearly 3.5% in premarket trading as profits fell less than expected.
The investment banking division reported revenue that fell 57% to $1.58 billion. Revenue from fixed-income traders rose 41% to $3.53 billion for the quarter, while revenue for equities traders fell 14% to $2.68 billion.
Solomon also confirmed reports that Goldman will enact a massive reshuffling of its internal structure. The firm is combining its investment banking and trading operations – traditionally viewed as rival divisions – into one team.
Marcus, Goldman’s troubled digital consumer bank, will be folded into its asset and wealth management division.
“Today, we enter the next phase of our growth, introducing a realignment of our businesses that will enable us to further capitalize on the predominant operating model of One Goldman Sachs,” Solomon said in a statement. “We are confident that our strategic evolution will drive higher, more durable returns and unlock long-term value for shareholders.”
The reorganization, first reported by the Wall Street Journal, sparked speculation that Solomon was teeing up Goldman’s investment bankers for leadership roles.
As The Post reported, some traders fear the restructuring will leave them iced out of promotions while bankers are given preferential treatment.
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