Goldman’s profit falls to three-year low on consumer deficit

The logo of Goldman Sachs is seen on the trading floor of the New York Stock Exchange (NYSE) on November 17, 2021 in New York City, New York, US.  - Reuters
The logo of Goldman Sachs is seen on the trading floor of the New York Stock Exchange (NYSE) on November 17, 2021 in New York City, New York, US. – Reuters

Wall Street titan Goldman Sachs’ profit plunged 60% to a three-year low due to consumer losses, it revealed on Wednesday.

Goldman saw a sharp drop in its profit in the second quarter, which missed Wall Street forecasts, as a retreat from consumer businesses and a decline in investment values ​​dragged its earnings by $1.4 billion.

The results were the worst for the Wall Street giant since the second quarter of 2020, when it took a writedown over a corruption scandal involving Malaysian state fund 1MDB, according to a Reuters report.

Goldman took a $504 million writedown related to its GreenSky business, which facilitates home improvement loans to consumers, and $485 million related to its real estate investments.

Shares declined 0.7% in early trading.

The bank also took credit losses of $615 million, including writedowns related to its consumer loans and business.

“This quarter reflects the continued strategic execution of our goals,” CEO David Solomon said in a statement.

“Global banking and markets delivered solid returns in an environment of cyclically low activity,” he said, citing the bank’s top ranking in the M&A league table for completed deals.

The bank reported Wednesday that earnings fell 60% to $3.08 per share for the three months ended June 30, compared with $7.73 per share a year earlier. Analysts had expected profit of $3.18 per share, according to Refinitiv data.

Net income fell 62% to $1.07 billion in the second quarter, compared to $2.79 billion a year ago.

“They certainly missed the target and it appears to be a lot more than almost all the other major banks,” said Randy Frederick, managing director of trading and derivatives at Charles Schwab.

Goldman agreed to acquire GreenSky in 2021 for $2.2 billion and later closed the deal at $1.7 billion.

Goldman’s Marcus unit was also folded into its merged asset and wealth management arm last year, as the investment bank began pulling out of retail banking.

Goldman gained $100 million from the sale of “substantially all of the remainder” of the Marcus loan portfolio.

Goldman’s asset and wealth management unit posted 4% lower revenue than last year, hurt by losses from real estate investments, although it booked record fees and assets under watch.

The bank said it plans to sell about half of its commercial real estate-related investments on its alternative arm of asset management over three to five years.

Goldman’s investment banking fees fell 20% to $1.43 billion for the quarter. Fixed income, currency and commodities trading revenue declined 26%, while equities rose 1%.

The Federal Reserve’s aggressive interest rate hikes to combat inflation have prompted officials to predict a recession in the second half of the year.

The uncertain outlook has impacted mergers and acquisitions, while a spate of initial public offerings has raised some optimism about an early recovery.

Analysts are optimistic that the ongoing correction in stock markets will encourage dealmaking and prompt more IPO hopefuls to list their shares in the coming months.

However, uncertainty about the pace of the economy remains a constraint, and global mergers and acquisitions activity declined 36% in the second quarter from a year earlier.

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