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By Noor Zainab Hussain and Saeed Azhar
(Reuters) - Goldman Sachs Group Inc on Monday warned it may slow hiring and cut expenses, as the economic outlook worsens, after reporting a 48% slump in quarterly profit which beat forecasts due to gains in fixed-income and commodities trading.
U.S. Federal Reserve interest rate hikes, aimed at taming runaway inflation, have rattled global financial markets, curbing companies' appetite for deals and making them wary of stock and debt offerings.
Goldman's investment banking revenue fell 41% to $2.14 billion in the second quarter, as fees from both equity and debt underwriting fell along with those from advising on stock listings and mergers and acquisitions.
"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," Chief Financial Officer Denis Coleman told analysts on an earnings' call.
"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 bank will also reinstate its annual performance review for employees at the end of the year, a process it had suspended during the period of the pandemic, he said.
The restoration of the process that tends to identify under-performers was the strongest signal that Wall Street banks may consider potential job cuts as outlook for dealmaking turns challenging. Wall Street had eased up on hiring after a recruiting frenzy last year.
Goldman Sachs CEO David Solomon said the market environment has become more "complicated" due to a combination of macroeconomic conditions and geopolitics, citing the war in Ukraine.
"We see inflation deeply entrenched in the economy," he said. "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."
Despite the slump in deals, Goldman's shares rose 3% as revenue at the global markets unit, which houses its trading desks, jumped 32% to $6.47 billion, with fixed income, commodities and trading revenue surging 55% and equities revenue adding 11%.
Goldman's chief financial officer also said the bank will "very carefully" look at buybacks. Other banks, such as JPMorgan, have suspended buybacks.
"We didn't give a number for this quarter but we did say that we're looking at it very carefully. We're operating with a capital surplus right now," he said.