Goldman Sachs misses profit after hit by GreenSky, real estate

Goldman Sachs Wednesday release The company’s profit fell short of analysts’ expectations due to writedowns related to commercial real estate and the sale of its GreenSky lending unit.

Here is the company’s report:

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

second quarter profit fall down 58% to $1.22 billion, or $3.08 a share, as a sharp decline in trading and investment banking, as well as losses related to GreenSky and real estate, cut earnings by about $3.95 a share. Revenue fell 8 percent to $10.9 billion.

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

Shares in the bank were down more than 1 percent in premarket trading.

Goldman Sachs Chief Executive David Solomon’s most important business faces a tough environment as investment banking and trading activity remain sluggish. Among other things, Goldman warned investors of write-downs in commercial real estate and impairments related to the planned sale of fintech unit GreenSky.

Unlike its more diversified rivals, Goldman derives most of its income from volatile Wall Street activities, including trading and investment banking. This can lead to outsized returns in boom times and underperformance when markets don’t cooperate.

To make matters worse, Salomon has been cutting back on its consumer banking business over the past few quarters, with unfortunate results, triggering charges related to the shrinking business.

“This quarter reflects continued strategic execution of our objectives,” Solomon said in the earnings release. “I remain fully confident that continued execution will enable us to achieve our return objectives throughout the cycle and create significant value for our shareholders.”

The bank’s average return on tangible common equity, a key performance measure, was just 4.4% in the quarter.This is well below its own target of at least 15%, as well as the results of competitors, including JPMorgan and Morgan Stanley.

Trading and investment banking has been weak recently as activity and initial public offerings have been subdued amid Fed rate hikes. But rival JPMorgan last week reported better-than-expected trading and banking results, saying economic activity had improved at the end of the quarter, raising hopes that Goldman could beat expectations.

Fixed-income trading revenue fell 26 percent to $2.71 billion, slightly below the $2.78 billion expected by analysts polled by FactSet. Equity trading revenue was roughly flat year-over-year at $2.97 billion, beating estimates of $2.42 billion.

Investment banking fees fell 20 percent to $1.43 billion, slightly missing expectations for $1.49 billion.

Asset and wealth management revenue fell 4 percent to $3.05 billion due to losses on equity investments and lower incentive fees.

Analysts are likely to ask Solomon for an update on his plans to exit consumer banking.Goldman Sachs is reportedly in discussions to sell its Apple Card business to American Expressbut it is unclear how far those talks have progressed.

Shares of Goldman Sachs had fallen nearly 2 percent this year through Wednesday, compared with a decline of about 18 percent for the KBW Bank Index.

Friday, JP Morgan Citigroup and FuGuo bank Both companies reported earnings that topped analysts’ expectations amid rising interest rates. Tuesday, Bank of America and Morgan Stanley Results that exceeded expectations were also reported.

Why Goldman Sachs Failed in Consumer Banking

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