Goldman Sachs misses on profit after hits from GreenSky, real estate

Goldman Sachs on Wednesday posted profit below analysts’ expectations amid writedowns tied to commercial real estate and the sale of its GreenSky lending unit.

Here’s what the company reported:

• Earnings: $3.08 a share vs. $3.18 a share Refinitiv estimate
• Revenue: $10.9 billion, vs. $10.84 billion estimate

Second-quarter profit fell 58% to $1.22 billion, or $3.08 a share, on steep declines in trading and investment banking and losses related to GreenSky and real estate, which sapped about $3.95 from per share earnings. Revenue fell 8% to $10.9 billion.

The company disclosed a $504 million impairment tied to GreenSky and $485 million in real estate writedowns. Those charges flowed through its operating expenses line, which grew 12% to $8.54 billion.

Shares of the bank dropped more than 1% in premarket trading.

Goldman CEO David Solomon faces a tough environment for his most important businesses as a slump in investment banking and trading activity drags on. On top of that, Goldman had warned investors of write-downs on commercial real estate and impairments tied to its planned sale of fintech unit GreenSky.

Unlike more diversified rivals, Goldman gets the majority of its revenue from volatile Wall Street activities, including trading and investment banking. That can lead to outsized returns during boom times and underperformance when markets don’t cooperate.

Exacerbating the situation, Solomon has spent the past few quarters retrenching from his ill-fated push into consumer banking, which has triggered expenses tied to shrinking the business.

“This quarter reflects continued strategic execution of our goals,” Solomon said in the earnings release. “I remain fully confident that continued execution will enable us to deliver on our through-the-cycle return targets and create significant value for shareholders.”

The bank put up a paltry 4.4% return on average tangible common shareholder equity in the quarter, a key performance metric. That is far below both its own target of at least 15% and competitors’ results including JPMorgan Chase and Morgan Stanley.

Trading and investment banking has been weak lately because of subdued activity and IPOs amid the Federal Reserve’s interest rate increases. But rival JPMorgan posted better-than-expected trading and banking results last week, saying that activity improved late in the quarter, and that raised hopes that Goldman might exceed expectations.

Fixed income trading revenue fell 26% to $2.71 billion, just under the $2.78 billion estimate of analysts surveyed by FactSet. Equities trading revenue was essentially unchanged from a year earlier at $2.97 billion, topping the $2.42 billion estimate.  

Investment banking fees fell 20% to $1.43 billion, just below the $1.49 billion estimate.

Asset and wealth management revenue fell 4% to $3.05 billion as the firm booked losses in equity investments and lower incentive fees.

Analysts will likely ask Solomon about updates to his plan to exit consumer banking. Goldman has reportedly been in discussions to offload its Apple Card business to American Express, but its unclear how far those talks have advanced.

Goldman shares have dipped nearly 2% this year before Wednesday, compared with the approximately 18% decline of the KBW Bank Index.

On Friday, JPMorgan, Citigroup and Wells Fargo each posted earnings that topped analysts’ expectations amid higher interest rates. Tuesday, Bank of America and Morgan Stanley also reported results that exceeded forecasts.