Goldman Sachs misses on profit after hits from GreenSky, real estate
Goldman Sachs reported second-quarter profit below analysts’ expectations, mainly due to write-downs related to commercial real estate and the sale of its GreenSky lending unit. The company’s profit for the quarter experienced a significant 58% decline, amounting to $1.22 billion, or $3.08 per share. This decrease was primarily attributed to steep declines in trading and investment banking activities, as well as losses associated with GreenSky and legacy investments, which impacted per-share earnings by approximately $3.95. Furthermore, the firm’s revenue declined by 8%, reaching $10.9 billion. Goldman Sachs revealed a $504 million impairment linked to GreenSky and $485 million in real estate writedowns. These charges were accounted for in its operating expenses, which increased by 12% to $8.54 billion. As a result of these financial developments, shares of the bank only saw a modest increase of less than 2%.
CEO David Solomon faces a challenging business environment, particularly for the bank’s most crucial sectors. A slump in investment banking and trading activity continues to pressure the company’s performance. Additionally, Goldman had warned investors of write-downs related to commercial real estate and impairments associated with the planned sale of the fintech unit, GreenSky. Unlike some of its more diversified rivals, Goldman Sachs relies heavily on revenue from volatile Wall Street activities, including trading and investment banking. This business mix can lead to substantial returns during prosperous periods but can also result in underperformance when markets are less favorable. Moody’s Investors Service analyst David Fanger commented on the situation, stating that Goldman’s results highlight the limitations of a business model that relies heavily on investment banking and principal investments. He also noted that when client activity remains weak and higher interest rates impact valuations, earnings decline more significantly than banks with higher recurring revenues. To compound the challenges, Solomon has been focusing on retrenching from the bank’s previous ventures into consumer banking over the past few quarters. This move has triggered expenses associated with scaling down the consumer banking business.