Goldman Profit Slumps 33% as Solomon Pleads Patience on Pivot

Goldman Sachs Group Inc. posted a second straight quarter of real estate writedowns and a continued dealmaking slump, leaving the firm’s profitability at about half the level it’s targeting.

(Bloomberg) — Goldman Sachs Group Inc. posted a second straight quarter of real estate writedowns and a continued dealmaking slump, leaving the firm’s profitability at about half the level it’s targeting. 

Property investments drove a $212 million loss in the equity book last quarter and an additional $358 million in impairments contributed to a 33% drop in profit. Trading revenue that surpassed analysts’ estimates helped soften the blow, but the shares sank as much as 2.1%.

Goldman suffered its eighth straight quarterly profit drop, and the firm’s return-on-equity of 7.1% remains well below the mid-teens target it has set for itself. Chief Executive Officer David Solomon is trying to revive the bank’s stock after backing off from a consumer-banking expansion and refocusing efforts on core business lines. 

“I think you can get very comfortable with the mid-teens target” for return on equity, Solomon said on a conference call with analysts. “We continue to be very optimistic about our view to deliver meaningfully higher returns to our shareholders.”

Investment bankers have been eager to signal that the business has reached a trough, and that they expect to see a return to normalcy in 2024. Early signs of green shoots in capital markets have been slow to take off because of political uncertainty in Washington, the risk interest rates will rise further and raging conflicts around the world.

Solomon said in a statement that he expects “a continued recovery in both capital markets and strategic activity if conditions remain conducive,” adding that “as the leader in M&A advisory and equity underwriting, a resurgence in activity will undoubtedly be a tailwind for Goldman Sachs.”

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The stock dropped 1.8% to $308.80 at 10:51 a.m. in New York. Goldman’s share price is down more than 25% since its record high in late 2021, and is on track for a second straight annual decline. 

The bank is also looking to move past increased scrutiny on its CEO, who has been battling dissatisfaction in his ranks for much of the last year. Solomon received a public nod of support from the board’s lead director last month, a move that could help quell some of the discontent. 

GreenSky Sale

Goldman last week struck a deal to sell its GreenSky unit at less than half the price it valued the installment-lending platform at less than two years ago. The bank took a $504 million writedown tied to the sale in the second quarter and suffered an additional roughly $65 million hit last quarter.

A consortium of investment firms led by Sixth Street Partners took GreenSky off Goldman’s hands.

Goldman boosted the portion of revenue it pays out to workers in the third quarter, taking its closely watched ratio to 34.5% so far this year. That means an extra $690 million over 2022’s pace. This time last year, the firm dragged down the ratio amid losses from its consumer unit, a move it later had to reverse.

Trading revenue was roughly unchanged from a year earlier, while analysts had expected a 13% drop.

Fixed-income traders brought in $3.38 billion, well above analysts’ estimates but still a 6% drop from a year earlier. The equities business posted $2.96 billion in revenue, up 8%. The trading operation had benefited from volatile markets during the pandemic and then the upheaval set off by Russia’s invasion of Ukraine, and has since been posting lower numbers by comparison.

Investment-banking revenue of $1.56 billion compared to analysts’ average estimate of $1.54 billion. Equity and debt-underwriting revenue climbed from a year earlier even as advisory fees remained depressed. Goldman led a flurry of initial public offerings last month, raising hopes of a revival in IPOs and dealmaking. But executives have since set a more cautious tone about when markets would return to a more normal pace.

The bank found a role on the jumbo $60 billion Exxon Mobil Corp. and Pioneer Natural Resources Co. deal, the biggest merger announced so far this year.

Wealth Management

Goldman’s asset-and wealth-management business generated revenue of $3.23 billion, up 6% from the previous quarter. It snapped a streak of three straight quarters of declining revenue in the unit. The bank has been pushing to unwind its historical balance-sheet investments, which are down to $21 billion. The bank also raised $15 billion in gross third-party alternative fundraising. That’s helped management fees in the group climb to $2.4 billion for the quarter. 

In August, Goldman struck a deal to sell its investment-advisory business to Creative Planning LLC. The move signaled Goldman’s desire to refocus its attention on the ultra-rich segment, where it has been traditionally strong.

The firm also gutted the leadership ranks of its transaction-banking business in September over compliance lapses. It was another black eye for one of the firm’s newer forays, with the cash-management service rolled out under Solomon in his push for more diversified sources of revenue.

Other key results

  • Net income was $2.06 billion in the third quarter, down 33% from a year earlier.
  • Debt-underwriting revenue climbed to $415 million, compared to analysts’ estimates of $460 million.
  • Revenue declined 1% to $11.8 billion, compared to analysts’ estimates of $11.1 billion.
  • Total assets under supervision stood at $2.68 trillion, up from $2.5 trillion at the start of the year.

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