A tentative recovery in dealmaking countered a $864 million writedown relating to its GreenSky fintech business and real estate investments, causing Goldman Sachs’ (GS.N) third-quarter profit to decline less than anticipated.
Wall Street executives are more optimistic about a revival in the capital markets after dealmaking came to a near halt in 2022 because of greater geopolitical risk following the crisis in Ukraine and the Federal Reserve’s aggressive monetary tightening.
David Solomon, the chief executive officer of Goldman Sachs, anticipated that both the capital markets and strategic activities like mergers and acquisitions will continue to recover. “The work we’re doing now provides us a much stronger platform for 2024,” he stated.
Based on data released by Goldman Sachs on Tuesday, net income dropped by 33% to $2.06 billion, or $5.47 per share. Analysts had projected a profit of $5.31 per share on average, according to LSEG statistics.
In late morning trade, the bank’s shares were down 0.2%, while shares of Bank of America, which also released earnings on Tuesday and beat estimates, were up 3.1%. On Wednesday, rival Morgan Stanley (MS.N) is expected to release its profits.
“It was a noisy quarter, but we believe exiting GreenSky was a good decision,” as stated by David Konrad, an analyst at Keefe, Bruyette & Woods in a note. High-profile initial public offerings (IPOs) in September included Instacart (CART.O), a supermarket delivery service, and Arm Holdings, a chip designer owned by SoftBank Group (9984.T).
The share sales prompted optimism for a resurgence in the IPO market, but weak performance following debuts and the underwhelming response to the German sandal manufacturer Birkenstock (BIRK.N) have cast doubt on the market’s resilience.
The $1.55 billion in investment banking fees for Goldman continued to decline year over year in the second and third quarters but remained virtually flat in the third quarter. Revenue from equity underwriting increased 26% and that from loan underwriting increased 27% in the third quarter compared to the prior year.
With a 6% decline in net revenue, Goldman experienced challenges in fixed-income instruments, currencies, and commodities (FICC). Other banks’ FICC earnings were uneven, with JPMorgan up 1% and Bank of America up 6%. Although numerous bank executives have stated they anticipated borrowing costs to remain higher for longer, the U.S. Federal Reserve may increase interest rates one more time this year.
Goldman’s catastrophic venture into consumer banking, which has cost the company $3 billion in three years, has continued to weigh. With the sale of GreenSky to a group of investment companies led by Sixth Street Partners, which facilitates consumer loans for home improvements, the bank had to take a $506 million write-down on the company.
Although it was valued at $2.2 billion when the deal was first announced in 2021, it was bought for $1.7 billion last year. In the second quarter, Goldman charged $504 million for GreenSky. Real estate investments also contributed to a decline in revenue, with the bank recording a $358 million impairment charge as opposed to a $485 million charge in the second quarter. This caused its asset and wealth management unit’s income to suffer, which fell 20% to $3.23 billion.
“Going forward, Goldman Sachs will likely face less headwinds from severance costs, CRE impairments, and consumer loan exits,” stated David Fanger, a senior vice president at rating agency Moody’s Investors Service.
Loans for commercial real estate which have evolved as a risk for banks as interest rates move up, made up 14% of Goldman’s entire loan portfolio. With an eye toward expanding in asset and wealth management, Solomon has shifted the firm’s focus back to its conventional strengths in investment banking and trading.
JPMorgan Chase (JPM.N) reported a 6% fall in revenue, while Citigroup (C.N) reported a 34% increase in fees. Investment banking results have been mixed for peers. “(Goldman) remains highly geared toward and more reliant on an improved investment banking environment than its peers,” said Moody’s Fanger.
- Published By Team Genuine Reporter