Goldman Sachs on Wednesday posted profit below analysts’ expectations amid write-downs tied to industrial real estate and the sale of its GreenSky lending unit.
Here’s what the corporate reported:
- Earnings: $3.08 a share vs. $3.18 a share Refinitiv estimate
- Revenue: $10.9 billion, vs. $10.84 billion estimate
Second-quarter profit fell 58% to $1.22 billion, or $3.08 a share, on steep declines in trading and investment banking and losses related to GreenSky and legacy investments, which sapped about $3.95 from per share earnings. Revenue fell 8% to $10.9 billion.
The corporate disclosed a $504 million impairment tied to GreenSky and $485 million in real estate write-downs. Those charges flowed through its operating expenses line, which grew 12% to $8.54 billion.
Shares of the bank climbed lower than 1%.
Goldman CEO David Solomon faces a troublesome environment for his most vital businesses as a slump in investment banking and trading activity drags on. On top of that, Goldman had warned investors of write-downs on industrial real estate and impairments tied to its planned sale of fintech unit GreenSky.
Unlike more diversified rivals, Goldman gets nearly all of its revenue from volatile Wall Street activities, including trading and investment banking. That may result in outsized returns during boom times and underperformance when markets don’t cooperate.
Exacerbating the situation, Solomon has spent the past few quarters retrenching from his ill-fated push into consumer banking, which has triggered expenses tied to shrinking the business.
“This quarter reflects continued strategic execution of our goals,” Solomon said within the earnings 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.”
The bank put up a paltry 4.4% return on average tangible common shareholder equity within the quarter, a key performance metric. That is much below each its own goal of a minimum of 15% and competitors’ results including JPMorgan Chase and Morgan Stanley, which put up returns of 25% and 12.1% respectively.
Trading and investment banking have been weak recently due to subdued activity and IPOs amid the Federal Reserve’s rate of interest increases. But rival JPMorgan posted better-than-expected trading and banking results last week, saying that activity improved late within the quarter, and that raised hopes that Goldman might exceed expectations.
Fixed income trading revenue fell 26% to $2.71 billion, slightly below the $2.78 billion estimate of analysts surveyed by FactSet. Equities trading revenue was essentially unchanged from a yr earlier at $2.97 billion, topping the $2.42 billion estimate. Â
Investment banking fees fell 20% to $1.43 billion, slightly below the $1.49 billion estimate.
Asset and wealth management revenue fell 4% to $3.05 billion because the firm booked losses in equity investments and lower incentive fees.
Analysts will likely ask Solomon about updates to his plan to exit consumer banking. Goldman has reportedly been in discussions to dump its Apple Card business to American Express, however it’s unclear how far those talks have advanced.
Goldman shares have dipped nearly 2% this yr before Wednesday, compared with the roughly 18% decline of the KBW Bank Index.
On Friday, JPMorgan, Citigroup and Wells Fargo each posted earnings that topped analysts’ expectations amid higher rates of interest. Tuesday, Bank of America and Morgan Stanley also reported results that exceeded forecasts.
