Goldman Sachs reported a sharp drop in profit on Wednesday as dealmaking and trading, a core part of the mega bank’s business, dry up. The Wall Street titan also felt the pain of a nearly $1 billion reduction in the value of its consumer and real estate businesses.
Goldman saw its investment banking revenue decline by about 20% in the second quarter of 2023, according to its latest earnings report, released Wednesday. Trading revenue also fell by 14%. Overall, profit fell by 58% from a year ago, to $1.2 billion.
While Citigroup and Morgan Stanley also saw their profit decline, Goldman reported the largest drop of its peers.
The company brought in $3.08 per share in the second quarter, falling short of the $3.16 per share analysts had expected, according to FactSet. Goldman is the only large bank so far to miss on earnings per share estimates.
This marks the worst quarterly profits since early 2020, during the pandemic-induced recession. The poor report will likely increase scrutiny of CEO David Solomon who has been under pressure for overseeing the bank’s shrinking consumer business.
“Our results were impacted by the challenging macro environment and in particular headwinds facing our specific mix of businesses,” said Solomon on Goldman’s earnings call Wednesday morning. “Activity levels in many areas of investment banking hover near decade-long lows and clients largely maintained a risk off posture over the course of the quarter.”
There are green shoots emerging in M&A, said Solomon. “It definitely feels better over the course of the last six to eight weeks than it felt earlier in the year,” he said. “I know this level of 10-year lows in investment banking activity is not going to be the normal on a forward basis.”
Solomon said that winding down the bank’s consumer lending business will free up capital and time to refocus on efforts that are core to the bank’s strategy.
Still, not all analysts agree with that assessment.
“We’ve been very underimpressed by management’s execution and vision in regard to the consumer side of [Goldman Sachs],” said David Wagner, portfolio manager at Aptus Capital Advisors, on Wednesday. “The inability to execute on this front has led us to believe that there is a lot of internal strife at the company, which could create employee retention problems in the future as faith in David Solomon could be lost.”
Solomon, 61, did not speak to a potential succession plan during the earnings call.
Goldman Sachs (GS) stock was down in early trading but erased earlier losses and was trading nearly 0.9% higher following the call.
