Goldman Sachs Profit Falls Below Expectations
July 19, 2023: Goldman Sachs faced a challenging second quarter, with profits falling below analysts’ expectations due to significant writedowns linked to commercial real estate and the sale of its GreenSky lending unit. The bank reported a 58% decline in second-quarter profit, amounting to $1.22 billion, or $3.08 per share. The losses in trading and investment banking, combined with the impact of GreenSky and real estate issues, contributed to a decrease of $3.95 in earnings per share. Overall revenue also declined by 8% to $10.9 billion.
The company disclosed that it faced a $504 million impairment related to GreenSky and $485 million in real estate writedowns. These charges affected its operating expenses, which increased by 12% to $8.54 billion.
Goldman Sachs’ CEO, David Solomon, acknowledged the harsh environment for their crucial businesses, notably investment banking and trading, which experienced a downturn. The bank had previously alerted investors about the writedowns on commercial real estate and impairments associated with the planned sale of GreenSky.
Goldman Sachs predominantly relies on volatile Wall Street activities, such as trading and investment banking, for a significant portion of its revenue. While this approach can yield substantial returns during prosperous times, it may result in underperformance when market conditions are challenging.
Solomon’s efforts to retrench the bank’s unsuccessful venture into consumer banking further contributed to expenses tied to shrinking the business. Despite the difficulties, Solomon remains optimistic about achieving the bank’s long-term return targets and creating shareholder value.
However, Goldman Sachs’ performance on a critical performance metric, return on average tangible common shareholder equity, was disappointing, reaching only 4.4% in the quarter, significantly below the bank’s target of at least 15% and its competitors’ results.
Notably, Goldman’s peers, JPMorgan Chase, and Morgan Stanley, surpassed analysts’ expectations with their earnings, citing a resilient economy. Nonetheless, the bank remains hopeful that an ongoing recovery in stock markets might boost dealmaking and encourage more companies to go public.
Goldman Sachs has been actively cutting costs by laying off thousands of employees to mitigate the impact of the dealmaking slowdown. However, if revenue does not rebound, more layoffs may be on the horizon.
In conclusion, Goldman Sachs faces challenges in its investment banking and trading divisions, but its CEO remains optimistic about its long-term prospects. However, the uncertain economic outlook and the need for strategic evolution prompt careful decision-making for the bank’s future success.