Goldman Sachs posts 58% profit decline as impairments climb

Goldman Sachs had been actively tamping down expectations heading into the report. Reuters

Goldman Sachs Group’s profit plunged as the Wall Street company reported one of its weakest quarters in terms of profitability under chief executive David Solomon.

Earnings fell 58 per cent on an investment-banking slump, property markdowns and a goodwill write-down in the consumer business, which houses the GreenSky lending business.

Return on equity, a key measure of profitability, slid to 4 per cent in the quarter, the worst among the top US banks.

The company had been actively tamping down expectations heading into the report, prompting analysts to slash their estimates for quarterly profit by almost half since mid-June.

Its shares fell by 2 per cent in early New York trading.

Goldman’s management has been working to smooth the company’s sometimes volatile quarterly results, which featured big gains during the post-coronavirus boom followed by a run of missed profitability goals.

Investors are looking to see whether the second quarter represents a trough for the New York-based company, with a steadier run of earnings gains ahead.

Equities trading was one bright spot, coming in ahead of its major rivals at $3 billion in revenue, compared with estimates for $2.47 billion.

Goldman’s asset-and wealth-management business posted revenue of $3.05 billion, down 4 per cent from a year earlier. Analysts predicted revenue of $3.5 billion for the division.

The unit was buffeted by the bank’s exposure to the property sector, with write-downs both on its lending portfolio and its equity investments contributing to a $1.15 billion pretax earnings hit tied to its principal investments.

Unlike most of its major competitors, Goldman has aggressively used its own balance sheet to make investments, a strategy that can lead to big swings in results.

The lender has been looking to rely more on fees from investing money for other institutions.

The bank also reported a jump in operating expenses due to how it accounts for impairments tied to some of its consolidated real estate investments, as well as the goodwill write-down. The impairments stood at about $1 billion.

Goldman has been pursuing the sale of its GreenSky business slightly over a year after completing its purchase – one of the most visible signs of how management has backtracked on the pursuit of its retail-banking strategy in the past year.

* Fixed-income traders brought in $2.71 billion, down 26 per cent. Expectations were for $2.81 billion.

* Investment-banking revenue of $1.43 billion fell short of the average analyst estimate of $1.51 billion. Equity underwriting climbed from a year earlier and advisory fees plunged. Bankers have cautioned that even when deal-making rebounds, the low volume of announced mergers so far this year could keep the pressure on through the rest of the year.

* Revenue dropped 8 per cent to $10.9 billion, compared with analyst estimates of $10.5 billion.

* Total assets under supervision increased to a record $2.71 trillion, up from $2.67 trillion as of March 31.