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Goldman sees drop in banking, investing revenues

A slowdown in deal and financing activity has meant a drop in investment banking revenue, accompanied by a loss in the principal investment arm of a major Wall Street firm.

Goldman Sachs reported markedly lower first-quarter earnings, largely the result of a slowdown in M&A advisory work, mirroring a near halt in deal activity among some of the firm’s most important investment banking clients – private equity firms.

Goldman Sachs reported net revenues down 32 percent to $1.17 billion (€748 million). The decline was largely due to a 40 percent drop in debt underwriting revenue, the firm disclosed in its earnings report. The firm specifically cited weakness in “leveraged finance and mortgage-related activity, reflecting difficult market conditions”.

Meanwhile, the firm recorded a net loss of $532 million during the first quarter relate to a $135 million loss on ordinary shares in Industrial Commercial Bank of China and “losses from other corporate principal investments”. Goldman’s Principal Investment Area houses one of the largest private equity direct investment programmes in the world. Last year, Goldman’s first quarter saw a gain of $1.7 billion from principal investing.

In a interview with sister publication Private Equity International in January, Milton Berlinski, global head of financial sponsors at Goldman Sachs’ investment banking arm, said: “For now, $20 billion to $40 billion deals are just not going to happen. The market depth is not there, and frankly most boards do not want to deal with the uncertainty of deals of that size.”

However, Milton added, “One billion to $10 billion is going to be the sweet spot, and very doable if they make sense.”