Goldman’s profit hit by business slowdown and decline in retail banking

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Goldman Sachs’ quarterly profit fell to its lowest in three years, as a costly withdrawal from consumer banking deepened the pain of an industry-wide slump in deals and trading.

Goldman said on Wednesday that net income in the second quarter fell by nearly two-thirds to $1.1 billion, from $2.8 billion a year ago.

The Wall Street bank has been badly hit by prolonged weakness in investment banking and trading, its historic profit engine. Investment banking revenue fell 20 percent to $1.4 billion, while revenue from trading equities, fixed income, currencies and commodities fell 12 percent to $5.7 billion.

The already testing quarter was also marred by a number of allegations, including a $504 million writedown on GreenSky, an online lender it acquired in 2021 as part of Chief Executive David Solomon’s ill-fated push into consumer banking. Goldman also reported a $485 million loss on its real estate investments.

While the bank’s $1.1 billion profit in the quarter matched analyst expectations, the drop in earnings highlights the pressures facing Solomon, who is stuck in the most challenging period of his tenure that began in 2018.

Last year, Solomon distanced itself from the group’s much-anticipated expansion into consumer banking and refocused on Goldman’s investment banking and trading businesses, as both face the toughest conditions in many years.

“I remain confident that continued execution will enable us to meet our full cycle return targets and create significant value for shareholders,” Solomon said Wednesday.

The decline in investment banking revenue was in line with analysts’ expectations but sharper than the 5.6 percent decline at JPMorgan. Investment banking revenue, meanwhile, held steady at close rival Morgan Stanley and rose 7 percent at Bank of America. In Citigroup they fell 30 percent.

Trade revenue is still above pre-pandemic levels, but trade is taking a hit during the pandemic due to volatile financial markets, interest rate hikes by central banks and Russia’s war with Ukraine.

Within Goldman’s trading division, revenue from equities rose 1 percent to nearly $3 billion, beating estimates of $2.4 billion. This helped total revenue for the quarter reach $10.9 billion, down 8 percent from a year earlier but better than expected.

Goldman’s fixed-income and commodities traders fared less well, with revenue falling 26 percent to $2.7 billion, below the $2.8 billion analysts had estimated.

Goldman’s asset and wealth management division, a cornerstone of Solomon’s efforts to diversify Goldman’s business, reported revenue of $3 billion, down 4 percent from the same period last year and beating analysts’ estimates of $3.5 billion. is behind. Earnings were impacted due to losses related to real estate investments.

Goldman’s return on equity, a key measure of profitability, was 4 per cent for the quarter, which is well below peers and a far cry from the bank’s own target of 14-16 per cent.

Shares of the bank, which have fallen about 2 percent this year, fell 1.5 percent in pre-market trading in New York. Analysts were unusually divided on how bad this quarter would be for the bank.

Additional reporting by Stephen Gandel

This article has been amended to clarify that Goldman’s Q2 profit was its lowest since 2020.

Receive free Goldman Sachs Group updates

we will send you one myFT Daily Digest Latest Email Rounding goldman sachs group News every morning.

Goldman Sachs’ quarterly profit fell to its lowest in three years, as a costly withdrawal from consumer banking deepened the pain of an industry-wide slump in deals and trading.

Goldman said on Wednesday that net income in the second quarter fell by nearly two-thirds to $1.1 billion, from $2.8 billion a year ago.

The Wall Street bank has been badly hit by prolonged weakness in investment banking and trading, its historic profit engine. Investment banking revenue fell 20 percent to $1.4 billion, while revenue from trading equities, fixed income, currencies and commodities fell 12 percent to $5.7 billion.

The already testing quarter was also marred by a number of allegations, including a $504 million writedown on GreenSky, an online lender it acquired in 2021 as part of Chief Executive David Solomon’s ill-fated push into consumer banking. Goldman also reported a $485 million loss on its real estate investments.

While the bank’s $1.1 billion profit in the quarter matched analyst expectations, the drop in earnings highlights the pressures facing Solomon, who is stuck in the most challenging period of his tenure that began in 2018.

Last year, Solomon distanced itself from the group’s much-anticipated expansion into consumer banking and refocused on Goldman’s investment banking and trading businesses, as both face the toughest conditions in many years.

“I remain confident that continued execution will enable us to meet our full cycle return targets and create significant value for shareholders,” Solomon said Wednesday.

The decline in investment banking revenue was in line with analysts’ expectations but sharper than the 5.6 percent decline at JPMorgan. Investment banking revenue, meanwhile, held steady at close rival Morgan Stanley and rose 7 percent at Bank of America. In Citigroup they fell 30 percent.

Trade revenue is still above pre-pandemic levels, but trade is taking a hit during the pandemic due to volatile financial markets, interest rate hikes by central banks and Russia’s war with Ukraine.

Within Goldman’s trading division, revenue from equities rose 1 percent to nearly $3 billion, beating estimates of $2.4 billion. This helped total revenue for the quarter reach $10.9 billion, down 8 percent from a year earlier but better than expected.

Goldman’s fixed-income and commodities traders fared less well, with revenue falling 26 percent to $2.7 billion, below the $2.8 billion analysts had estimated.

Goldman’s asset and wealth management division, a cornerstone of Solomon’s efforts to diversify Goldman’s business, reported revenue of $3 billion, down 4 percent from the same period last year and beating analysts’ estimates of $3.5 billion. is behind. Earnings were impacted due to losses related to real estate investments.

Goldman’s return on equity, a key measure of profitability, was 4 per cent for the quarter, which is well below peers and a far cry from the bank’s own target of 14-16 per cent.

Shares of the bank, which have fallen about 2 percent this year, fell 1.5 percent in pre-market trading in New York. Analysts were unusually divided on how bad this quarter would be for the bank.

Additional reporting by Stephen Gandel

This article has been amended to clarify that Goldman’s Q2 profit was its lowest since 2020.