Wall Street expected a weak quarter at
Goldman Sachs,
and on that count the investment bank didn’t disappoint.
Profit at Goldman Sachs (ticker: GS) plunged 58% from a year earlier thanks to a tepid climate for mergers and acquisitions as well as write-downs in its consumer business and real estate.
Going into the quarter, analysts were skeptical about Goldman’s prospects. Weak deal making is an industry-wide problem but Goldman has issues of its own. Its foray into consumer banking over the past year has been a dud and the bank is in retreat in that area while also dealing with reports of disquiet in its ranks.
But even with dialed-down expectations, Goldman’s results missed the mark. Earnings came in at $3.08 a share, falling short of projections of analysts surveyed by FactSet for a profit of $3.16. Revenue at Goldman slid 8% to $10.9 billion, but came in slightly ahead of forecasts of $10.6 billion.
“We expected a noisy quarter and that is what we got,” David Konrad, analyst at Keefe, Bruyette & Woods, wrote Wednesday. He rates shares Outperform even though he expects a few challenging quarters, noting that the stock trades just above tangible book value, which has historically been a good entry point for investors.
Deal making was sluggish as the market for initial public offerings remained challenging. Investment banking revenue, reflecting advisory and underwriting fees, fell 20% to $1.4 billion.
Goldman is the last of the big banks to report earnings this quarter, but it is also bringing up the rear in terms of performance.
JPMorgan Chase
(JPM) and
Bank of America
(BAC) both had strong quarters. And the bank most similar to Goldman,
Morgan Stanley
(MS), posted solid results despite a drop in advisory fees. While all of the banks that reported their results acknowledged challenging times, they all still topped earnings forecasts, many by a wide margin.
In addition to weak performance in investment banking, Goldman also posted $485 million in impairments related to real estate investments, which also were a drag on earnings. It also wrote down $504 million in goodwill tied to its consumer business, a move that comes as Goldman recently conceded that its attempt over the past few years to build out its consumer banking business largely has failed.
The bank said in April that it was considering a sale of GreenSky, a lending platform it bought in 2021. Goldman also is looking to exit its credit card partnership with Apple, The Wall Street Journal has reported.
In a call with analysts Wednesday, Goldman executives reiterated that they’re continuing to explore options for GreenSky and that there was “no more goodwill to be written down” in the business. Goldman Chief Executive David Solomon acknowledged weakness with the company’s credit card business, too.
“We’ve also said very clearly that our credit card partnerships are long-term partnerships,” Solomon said. “They definitely can operate better. We’ve been working hard to improve the operation of them which will reduce the drag and we’re making good progress on that.”
While the earnings results were disappointing, they’re likely being viewed by Wall Street as a reason to look at the broader issues facing the bank, putting Solomon in the hot seat. In Wednesday’s call, the CEO was asked by Wells Fargo Securities analyst Mike Mayo if this quarter is “as bad as it gets.”
“This was obviously a tough quarter, but we also had one-off items that we put in,” Solomon said. “But I feel very, very good about the strategic decisions that we’re making, the execution that we’re working on, the progress we’re making in asset and wealth management, and we as a leadership team see a clear path to improvement in a better operating environment.”
Solomon has had to explain the firm’s strategy with its ever-shrinking consumer business while also coming up against a flurry of media reports that suggest investors and Goldman employees have been losing faith in his leadership.
In an interview with Barron’s in May, Solomon defended his outside activities such as spending time as a disc jockey or investing in a luxury real estate firm, which have been criticized for distracting him from running the firm.
“I am extremely focused on making sure we deliver for shareholders and for our clients. I read the press. I wish people would focus on Goldman Sachs. But I’m gonna have some outside interests because I’m a human being, like anyone running any of these institutions,” Solomon said.
Shareholders, meanwhile, are hoping that focus soon translates to better returns.
Write to Carleton English at [email protected]
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