Source: Company Information; Leverage Shares analysis

As a result, net earnings (and profit margin) have been rising to the percentage-share highs seen in FY 2021. In fact, if trends were to continue, parity with the highs could possibly be attained by the end of FY 2025.

A persistent trend that was highlighted in the previous article about the bank’s FY results¹ continues in this quarter: deal-making (once a cornerstone of the bank’s prowess in the industry) has shrunk away leading to market-facing segments such as Equities and FICC (“Fixed Income, Currency & Commodities”) as well as client wealth management accounting for 75% of the total revenue. Moreover, provision for credit losses went from $351 million in Q4 2024 to $287 million in Q1 2025, suggesting an overall improvement in business operations.

However, in a statement released on the same day as the earnings release, CEO David Solomon stated that “we are entering the second quarter with a markedly different operating environment than earlier this year” – a warning that Q2 onwards might need a certain grounding of expectations.

CEO Solomon wasn’t the only major financial services leader to essentially issue a warning about the impact of the ongoing tariff war. JPMorgan CEO Jamie Dimon stated that he believes it’s more likely than not that were will be a recession in the present year while BlackRock CEO Larry Fink warned that the impact of the tariff war could be widespread.

As a result of market uncertainty over the impact of tariffs on consumption, inflation and the markets, long-term borrowing rates have dropped², making it harder for banks to realize sizeable profits on loans. In addition, deal-making divisions are expected to take a hit as mergers & acquisitions (M&A) and IPO plans are shelved.

As it stands, a drop in deal-making isn’t a massive jolt given its reduced role but it is still a net contributor to the bottom line. The ongoing tussle between China and the U.S. is steadily growing deeper, with the government of the former directing its airlines on the 14th of April to not take deliveries of Boeing jets and associated aircraft parts from U.S. suppliers³. This marks another part of Goldman Sachs’ vulnerability: about a steady 11% of its revenue has been originating from Asia for a few years now – with a substantial portion likely with some connection to China, either directly or indirectly. If the Chinese government were to go on to order restrictions on relationships with American financial institutions, there is a possibility that this will be yet another blow on revenue growth.

In fact, CEO Solomon had explicitly stated that President Trump’s policies “reset the prospect of forward growth pretty significantly all over the world.”

As markets tumble, the prospect of a rate cut to spur lending activities is inevitable. While lower rates means lower profit booking, the spurring of economic activity might net banks greater revenue from a wider base of clients – which is why financials have now tended to perk up in conviction during periods of stronger recessionary outlook.

Despite CEO Solomon’s warnings about the forward outlook, the stock did rise by a little under 2% in the course of the trading session on the 14th of April. While after-hours trading and pre-market trading session are hinting at an erasure of these gains, it’s more likely than not that the stock prices of the likes of Goldman Sachs would far less badly than most other sectors. Given that the bank also issues dividends (and had, in fact, authorized a respectable $3 quarterly dividend), there is some strength to the argument that holding a position in the bank’s stock would do well for portfolio diversification in the year to come.

Footnotes:

1. “Goldman Sachs FY 2024: Industry Leadership Remains”, Leverage Shares, 17 January 2025
2. “Stock rout and dealmaking freeze raise stakes for start of Wall Street’s earnings season”, Yahoo! Finance, 5 April 2025
3. “China reportedly orders its airlines to halt Boeing jet deliveries amid US trade war”, The Guardian, 15 April 2025