Goldman Sachs Group reported a bigger-than-expected drop in second-quarter profit as a retreat from consumer businesses and declining investment values took a toll on the Wall Street giant.
The bank took a writedown of $504 million tied to its GreenSky business and $485 million related to its consolidated real estate investments.
It was Goldman’s lowest quarterly profit since the second quarter of 2020. Earnings fell more than 60% to $1.07 billion, or $3.08 per share, for the three months ended June 30, the bank reported on Wednesday.
Morgan Stanley profit drops 18% as deal drought persists
That compares to $2.79 billion, or $7.73 per share, a year earlier. Analysts had expected a profit of $3.18 per share, according to Refinitiv data.
Goldman agreed to acquire Greensky, which facilitates home improvement loans to consumers, for $2.2 billion in 2021 and closed the deal at $1.7 billion.
CEO David Solomon told analysts in April that GreenSky is a “good business” but the bank might not be the “best long-term holder of this business” given its strategic priorities.
Goldman’s Marcus unit was also folded into its merged asset and wealth management arm last year, as the investment bank began pulling back from retail banking.
The sale of “substantially all of the remaining” Marcus loans portfolio also resulted in a gain of $100 million for Goldman.
Goldman’s asset and wealth management unit brought in 4% lower revenue compared to last year, hurt by losses from real estate investments.
The bank’s report rounds out a strong quarter for big U.S. banks, which pointed to a resilient economy but offered further evidence that high borrowing costs will begin to weigh on loan demand later this year.
Investment banking fees for the quarter fell 20% to $1.43 billion. Trading revenue for fixed income, currency and commodities fell 26%, while equities trading revenue was broadly unchanged.
Ten straight rate hikes by the Federal Reserve have left the economy on a shaky ground, with many executives predicting a slowdown in the second half of the year.
That has prevented the market for mergers and acquisitions from roaring back to life even as it has begun to show some signs of recovery.
On Tuesday, Goldman’s peer Morgan Stanley said its investment banking revenue was in line with last year, but the trading business had weakened.
Analysts are optimistic that an ongoing recovery in stock markets will encourage dealmaking and prompt more IPO hopefuls to list their shares in the coming months.
However, uncertainty about the trajectory of the economy continues to be a hurdle with global mergers and acquisitions activity falling 36% from last year in the second quarter.
The bank has laid off thousands of employees to curb costs and soften the hit from a dealmaking slump. More employees can expect to be laid off this year if revenue does not bounce back, a sources told Reuters earlier.
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