Profits plunged at Goldman Sachs (GS) during the second quarter as the Wall Street giant struggled with its core businesses of dealmaking and trading while taking impairment charges on consumer and commercial real estate holdings.
Goldman’s investment banking revenue declined 20% from a year ago and trading dropped 12%. That helped drag earnings down 58%, to $1.2 billion.
The earnings drop was worse than analysts expected. It was the firm’s lowest quarterly profits since early 2020.
The results are likely to intensify the scrutiny of CEO David Solomon, who is wrestling with everything from partner unrest to concerns about strategy as he tries to put a costly consumer-banking experiment behind the company.
Goldman is the latest of several big banks to report a continued slowdown in investment banking and trading.
Revenues from those businesses dropped during the last quarter at Citigroup (C) and JPMorgan Chase (JPM) but were up at Bank of America (BAC). At Morgan Stanley (MS), investment banking was flat compared to a year ago while trading revenues were down.
Goldman’s drop in investment banking was the second-worst among its peers, behind Citigroup. Its trading decline put it in the middle of the pack, better than Citigroup and Morgan Stanley but worse than Bank of America and JPMorgan.
Following a boom in 2021, the global slowdown in dealmaking began last year causing firms across Wall Street to slash bonuses and staff. It continued in 2023 as worldwide investment banking revenues for the second quarter fell 52% from a year ago, according to Dealogic.
Goldman is among the firms on Wall Street that have made or announced cuts of roughly 12,000 jobs since the end of 2022.
Bank executives and analysts are still predicting “green shoots” ahead, citing an uptick in announced M&A deals over the second quarter which could mean an improvement during the back half of 2023.
Morgan Stanley’s Chief Financial Officer Sharon Yeshaya told analysts Tuesday that “sentiment and activity improved towards the end of the quarter, evidenced by green shoots that emerged across our businesses.”
JPMorgan Chief Financial Officer Jeremy Barnum said investment banking was better than expected in June, but cautioned analysts on Friday that it was “too early” to label it a trend.
“We will see,” he said. For overall capital markets, “July should be a good indicator for the remainder of the year.”
Retreat from Main Street
Goldman has challenges beyond Wall Street. It is also scaling back its one-time ambitions to become a major presence on Main Street, an effort that started with a savings account and personal loans in 2016 under former CEO Lloyd Blankfein.
The strategy deepened after Solomon became CEO in 2018, including a credit-card partnership with Apple in 2019 and the $2.2 billion purchase of buy-now-pay-later fintech lender GreenSky in 2021.
The effort has taken a toll on the firm. Solomon acknowledged earlier this year that that a chunk of its consumer business had lost $3 billion since 2020, saying that “we tried to do too much too quickly.” He also said it would try to sell GreenSky.
On Wednesday Goldman said it took a $504 million write down in the second quarter related to “consumer platforms.” It also took impairments of approximately $485 million related to consolidated real estate investments.
The Wall Street Journal has also reported Goldman is now trying to end its partnership with Apple.