Goldman Sachs profit tumbles on real-estate hits and banking slump

Goldman Sachs’s profit plunged as the Wall Street giant notched one of its weakest quarters under chief executive Officer David Solomon.

Earnings fell 58 per cent on an investment-banking slump, real-estate markdowns and a goodwill writedown in the consumer business, which houses the GreenSky lending business. Return on equity, a key measure of profitability, slid to 4 per cent in the quarter – the worst among the top US banks.

The firm had been actively tamping down expectations heading into the report, prompting analysts to slash their estimates for quarterly profit by almost half since mid-June. Shares of the company fell 1 per cent in early New York trading.

Goldman’s management has been working to smooth the firm’s sometimes volatile quarterly results, which featured big gains during the post-pandemic boom followed by a run of missed profitability goals. Investors are looking to see whether the second quarter represents a trough for the New York-based company, with a steadier run of earnings gains ahead.

Equities trading was one bright spot, coming in ahead of its major rivals at $3 billion (€2.7 billion) in revenue, compared with estimates for $2.47 billion.

Goldman’s asset- and wealth-management business posted revenue of $3.05 billion, down 4 per cent from a year earlier. Analysts predicted revenue of $3.5 billion for the division. The unit was buffeted by the bank’s exposure to the real-estate sector, with writedowns both on its lending portfolio and its equity investments contributing to a $1.15 billion pretax earnings hit tied to its principal investments.

Unlike most of its major competitors, Goldman has aggressively used its own balance sheet to make investments, a strategy that can lead to big swings in results. The firm has been looking to rely more on fees from investing money for other institutions.

The bank also reported a jump in operating expenses due to how it accounts for impairments tied to some of its consolidated real estate investments as well as the goodwill writedown. The impairments totalled about $1 billion.

The bank has been pursuing a sale of the GreenSky business just over a year after completing its purchase – one of the most visible signs of how dramatically management has backtracked on the pursuit of its retail-banking strategy in the past year. – Bloomberg