Inflation deeply entrenched, warns Goldman Sachs chief

THE chief executive of Goldman Sachs has warned that inflation is “deeply entrenched” in the US, as the investment bank warned job cuts were likely as the economy flags.

Goldman Sachs’ profit nearly halved in the second quarter as the invasion of Ukraine and rising geopolitical tensions led to a dearth of dealmaking.

The bank reported profits of $2.8bn (£2.3bn) for the three months to the end of June, compared to $5.3bn in the same quarter last year.

David Solomon, the chief executive, said the market environment has become more “complicated” in recent months as war rages in Ukraine and inflation climbs above 9pc in the US.

He said: “We see inflation deeply entrenched in the economy. And what’s unusual about this particular period is that both demand and supply are being affected by exogenous events, namely the pandemic and the war.”

The company warned it may slow hiring and cut underperforming staff as the economic outlook gets worse.

Denis Coleman, the chief financial officer, said: “Given the challenging operating environment, we are closely re-examining all of our forward spending and investment plans to ensure the best use of our resources.

“Specifically, we have made the decision to slow hiring velocity and reduce certain professional fees going forward, though these actions will take some time to be reflected in our results.”

The Wall Street giant’s investment banking arm suffered a fall in mergers and acquisitions and stock market listing in the second quarter as companies face mounting uncertainty.

The bank said its deals backlog shrank compared with the first quarter, which could indicate that potential mergers and flotations are being scrapped instead of being postponed.

However, the rise of interest rates to tackle inflation and the war in Ukraine pushed clients to rebalance their portfolios, boosting trading activity.

The strength of fixed-income trading meant the profits decline was slightly better than analysts had feared. Revenue stood at $11.9bn for the second quarter, 23pc lower than a year earlier.

Last week, JP Morgan and Morgan Stanley both reported weaker revenue from investment banking as the outlook for the US economy worsens.

Goldman’s trading unit outperformed JP Morgan and Citigroup.

Mr Solomon has been working to reduce Goldman’s reliance on investment banking by shifting focus to the consumer banking unit. Consumer and wealth management recorded a jump in revenues thanks to higher management fees and credit card balances.

Rick Meckler, at Cherry Lane Investments, told Reuters: “It was not unexpected when you consider investment banking income is falling off the table.”