The Goldman Sachs ticker symbol and logo are displayed on a screen on the floor of the New York Stock Exchange (NYSE) in New York, United States, December 18, 2018. Portal/Brendan McDermid/File Photo Acquire License Rights
NEW YORK, Oct 17 (Portal) – Goldman Sachs (GS.N) profit fell less sharply than expected in the third quarter, as a nascent recovery in operations linked it to an $864 million writedown its GreenSky fintech business and its real estate investments.
Wall Street executives are more confident that capital market activity will recover after dealmaking came to a near standstill in 2022 due to heightened geopolitical risk following the war in Ukraine and the Federal Reserve’s aggressive monetary tightening.
Goldman Sachs Chief Executive David Solomon said he expects a continued recovery in both capital markets and strategic activities such as mergers and acquisitions.
“The work we are doing now gives us a much stronger platform for 2024,” he said.
Goldman Sachs’ net income fell 33% to $2.06 billion, or $5.47 per share, it said Tuesday. Analysts on average had expected earnings of $5.31 per share, according to LSEG data.
Shares of the bank fell 0.2% in late morning trading, while shares of Bank of America, which also reported Tuesday and beat estimates, rose 3.1%. Rival Morgan Stanley (MS.N) is due to report earnings on Wednesday.
“It was a turbulent quarter, but we believe exiting GreenSky was a good decision,” David Konrad, an analyst at Keefe, Bruyette & Woods, said in a note.
Goldman was an underwriter for high-profile initial public offerings (IPOs) in September, including chip designer Arm Holdings of SoftBank Group (9984.T) and grocery delivery app Instacart (CART.O).
The stock sales sparked optimism about a recovery in the IPO market, but poor post-IPO performance and the lukewarm reception of German sandal maker Birkenstock (BIRK.N) raised doubts about the market’s strength.
Goldman’s investment banking fees of $1.55 billion were largely flat in the third quarter, after falling by a fifth in the second quarter from a year earlier.
Equity offering proceeds increased 26% year-over-year in the third quarter, while bond offering proceeds increased 27%.
Goldman saw weakness in fixed income instruments, currencies and commodities (FICC) and reported a net revenue decline of 6%. FICC results from other banks were mixed, with Bank of America up 6% and JPMorgan up 1%.
The Federal Reserve could raise interest rates again this year, while several bank executives have said they expect borrowing costs to remain higher for longer.
Consumer banking weakness continues
Goldman’s ill-fated foray into retail banking, which lost $3 billion in three years, continued to weigh.
The bank took a $506 million writedown on GreenSky, which provides home improvement loans to consumers and was sold to a consortium of investment firms led by Sixth Street Partners.
It was purchased for $1.7 billion last year, although it was valued at $2.2 billion when the deal was first announced in 2021. Goldman took a $504 million charge from GreenSky in the second quarter.
Real estate investments further weighed on results, as the bank recorded an impairment charge of $358 million, compared to $485 million in the second quarter.
This weighed on the wealth management unit’s revenue, which fell 20% to $3.23 billion.
“Going forward, Goldman Sachs is likely to face fewer headwinds from severance costs, commercial real estate impairments and consumer loan exits,” said David Fanger, senior vice president at ratings agency Moody’s Investors Service.
Commercial real estate loans, which have become a risk for banks as interest rates rise, accounted for 14% of Goldman’s total loan portfolio.
Solomon has shifted the company’s focus back to its traditional strengths – investment banking and trading – and is seeking to grow in wealth and asset management.
Investment banking results were mixed among peers: JPMorgan Chase (JPM.N) reported a 6% decline in revenue, while Citigroup (CN) reported a 34% increase in fees. Morgan Stanley (MS.N) will report its results on Wednesday.
“(Goldman) remains strongly focused on and more reliant on an improved investment banking environment than its peers,” Moody’s Fanger said.
Goldman had 45,900 employees at the end of September, up 3% from the previous quarter but down nearly 7% from the same period last year. The bank has laid off thousands of employees this year, including a round of cuts in January that was the largest since the 2008 financial crisis.
“We believe the work we have done to right-size the business enables us to now invest more selectively in our headcount,” Chief Financial Officer Denis Coleman told analysts in a call.
Reporting by Niket Nishant and Noor Zainab Hussain in Bengaluru and Saeed Azhar in New York; Editing by Megan Davies, Lananh Nguyen, Arun Koyyur and Nick Zieminski
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