Profits plunged at Goldman Sachs (GS) during the second quarter as the Wall Street giant struggled with its core businesses of dealmaking and trading while taking nearly $1 billion in impairment charges on consumer and commercial real estate holdings.
Goldman’s investment banking revenue declined 20% from a year ago and trading dropped 14%. That and the impairment charges helped drag earnings down 58%, to $1.2 billion.
It was the firm’s lowest quarterly profits since early 2020.
The results are likely to intensify the scrutiny of CEO David Solomon, who is wrestling with everything from partner unrest to concerns about strategy as he tries to put a costly consumer-banking experiment behind the company.
The results this quarter included more costs from that consumer retreat, as Goldman took a $504 million write down related to the declining value of a speciality lender called GreenSky that Goldman purchased in 2021.
“This quarter reflects continued strategic execution of our goals,” Solomon said in a release. “I remain fully confident that continued execution will enable us to deliver on our through-the-cycle return targets and create significant value for shareholders.”
Goldman had been downplaying its results ahead of today’s release. Its stock was up more than 2% after Solomon told analysts he was optimistic about the direction of capital markets and how that might impact his business.
“It definitely feels better over the course of the last 6 to 8 weeks than it felt earlier in the year,” he told the analysts on a conference call.
Goldman is the latest of several big banks to report a continued slowdown in investment banking and trading.
Revenues from those businesses dropped during the last quarter at Citigroup (C) and JPMorgan Chase (JPM) but were up at Bank of America (BAC). At Morgan Stanley (MS), investment banking was flat compared to a year ago while trading revenues were down.
Goldman’s drops in investment banking and trading were the second-worst among its peers, behind Citigroup.
Equities trading was one positive, with $3 billion in revenues that were up 1% from the year-ago period. Fixed-income trading was down 26%.
Its overall firm revenues of $10.9 billion were also more than analysts expected.
‘Green shoots?’
The global slowdown in dealmaking began last year after a boom in 2021, causing firms across Wall Street to slash bonuses and staff. It continued in 2023 as worldwide investment banking revenues for the second quarter fell 52% from a year ago, according to Dealogic.
Goldman is among the firms on Wall Street that have made or announced cuts of roughly 12,000 jobs since the end of 2022.
Bank executives and analysts are still predicting “green shoots” ahead, citing an uptick in announced M&A deals over the second quarter which could mean an improvement during the back half of 2023.
Morgan Stanley’s Chief Financial Officer Sharon Yeshaya told analysts Tuesday that “sentiment and activity improved towards the end of the quarter, evidenced by green shoots that emerged across our businesses.”
JPMorgan Chief Financial Officer Jeremy Barnum said investment banking was better than expected in June, but cautioned analysts on Friday that it was “too early” to label it a trend.
“We will see,” he said. For overall capital markets, “July should be a good indicator for the remainder of the year.”
Solomon on Wednesday said Goldman’s investment-banking and trading unit “delivered solid returns in an environment with cyclically low activity levels and we remained #1 in completed M&A – a testament to our world-class client franchise.”
Retreat from Main Street
Goldman has challenges beyond Wall Street. It is also scaling back its one-time ambitions to become a major presence on Main Street, an effort that started with a savings account and personal loans in 2016 under former CEO Lloyd Blankfein.
The strategy deepened after Solomon became CEO in 2018, including a credit-card partnership with Apple in 2019 and the $1.7 billion purchase of buy-now-pay-later fintech lender GreenSky in 2021.
The effort has taken a toll on the firm. Solomon acknowledged earlier this year that that a chunk of its consumer business had lost $3 billion since 2020, saying that “we tried to do too much too quickly.”
The CEO has Goldman would try to sell GreenSky. The Wall Street Journal has also reported Goldman is now trying to end its partnership with Apple.
On Wednesday Goldman said it took a $504 million write down in the second quarter related to GreenSky. It also took impairments of approximately $485 million related to consolidated real estate investments, some of them office properties.
That helped push operating expenses up 12% from the year-ago period.
Commercial real estate properties across the US have been under stress over the past year due to rising interest rates from the Federal Reserve.
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