Goldman Sachs profits drop 36% after pullback from retail banking

Goldman Sachs has reported a 36 per cent drop in third-quarter profits, the bank’s eighth straight quarter of falling earnings, as it grappled with losses following its pullback from retail banking and writedowns on its real estate investments.

However, Goldman eked out a year-on-year increase in investment banking revenues for the first time in almost two years in a sign that the dealmaking drought may be coming to an end.

Goldman said on Tuesday that net income to shareholders for the quarter was $1.88 billion (€1.77 billion), down from $2.96 billion a year earlier and just shy of analysts’ estimates for about $1.92 billion, according to data compiled by Bloomberg.

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Goldman’s earnings were hit during the quarter by a loss on the sale of home improvement lending platform GreenSky to a private equity-led consortium, and the sale of what the bank called “substantially all” of its Marcus loan portfolio, as it nears an exit from its retail lending business.

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Goldman also took a $358 million impairment on its real estate investments in its asset and wealth management division.

“We continue to make significant progress executing on our strategic priorities and we’re confident that the work we’re doing now provides us a much stronger platform for 2024,” chief executive David Solomon said in a statement.

Unlike peers JPMorgan Chase and Morgan Stanley, Goldman lacks the same diversification in other businesses to compensate for a period of weaker performance in its core investment banking and trading activities.

Solomon, who has come under criticism from some employees over his running of the bank, has outlined a strategy of diversification into asset and wealth management, but those activities still make up a relatively modest part of Goldman’s profits.

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Goldman’s asset and wealth management division reported revenue of $3.2 billion. That was down 20 per cent from the same period last year due in part to losses on investments made by the bank, including in real estate.

Goldman is in the process of selling down these investments, which have a record of being very lucrative but are volatile and deemed risky by regulators. The bank is instead prioritising the management of third-party funds, which offer more stable fee-based income.

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Revenue from investment banking climbed to $1.6 billion in the quarter, up 1 per cent compared with a year earlier.

That was the first year-on-year increase in revenues for the business since the end of 2021, an indication that the worst of the investment banking slowdown may be over. There is optimism on Wall Street that activity is gradually picking up and that 2024 could be a stronger year.

Rival JPMorgan Chase last week reported that its investment banking revenues fell 3 per cent in the quarter.

Goldman said revenues from fixed income, currencies and commodities trading were $3.4 billion, down 6 per cent from a year earlier but ahead of analysts’ forecasts for $2.9 billion. – Copyright The Financial Times Limited 2023