Goldman Sachs Group Inc. reported trading revenue that beat analysts’ estimates while a second straight quarter of real estate writedowns dragged profit lower.
Property investments drove a $212 million loss in the firm’s equity book and an additional $358 million in impairments contributed to a 33% drop in profit. Trading revenue was roughly unchanged from a year earlier, while analysts had expected a 13% drop.
The trading strength stood out in a quarter featuring sluggish banking activity and questions about a dealmaking rebound. 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.
David Solomon
Chief Executive Officer David 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.”
Goldman’s results included the 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. Solomon is trying to revive the bank’s stock after backing off from a consumer-banking expansion and refocusing efforts on core business lines.
The stock was roughly unchanged at $314.70 at 8:32 a.m. in early New York trading. 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. He 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.
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% compared to a year earlier. 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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