Goldman Sachs Reports Better-than-Expected Q3 Profits Despite Writedown
Goldman Sachs has revealed that its third-quarter profits dropped less than expected, thanks to a nascent recovery in dealmaking, which offset an $864 million writedown related to its GreenSky fintech business and real estate investments. The investment bank’s net profit slumped by 33% to $2.06 billion, or $5.47 per share, beating analysts’ average estimates of $5.31 per share. The firm’s CEO, David Solomon, remains hopeful for a continued recovery in capital markets and strategic activities such as mergers and acquisitions.
Goldman Sachs’ investment banking fees of $1.55 billion remained largely unchanged in the third quarter, following a 20% decline in the previous quarter. The bank saw strength in equity and debt underwriting, with a 26% and 27% increase in revenue respectively. However, fixed income instruments, currencies, and commodities (FICC) experienced weakness, with net revenue down 6%. In comparison, Bank of America reported a 6% increase in FICC revenue, while JPMorgan’s FICC revenue was up 1%.
The bank’s ill-fated venture into consumer banking continued to weigh on its earnings. Goldman Sachs took a $506 million writedown on its GreenSky unit, which facilitates home improvement loans for consumers. The bank also recorded an impairment charge of $358 million from its real estate investments. These factors negatively impacted revenue from its asset and wealth management unit, which fell by 20% to $3.23 billion. However, analysts believe that going forward, Goldman Sachs will face fewer headwinds from severance costs, commercial real estate impairments, and consumer loan exits.
Goldman Sachs’ CEO, David Solomon, has been focusing the firm’s efforts back on its traditional strengths in investment banking and trading, with the aim of growing in asset and wealth management. Despite the challenges faced, Solomon remains optimistic about the future, stating, “The work we’re doing now provides us a much stronger platform for 2024.” The bank has also been making strategic moves, serving as an underwriter for high-profile initial public offerings (IPOs) in September, including SoftBank Group’s Arm Holdings and Instacart.
Shares of the bank were down slightly, by 0.2%, in late morning trade. In contrast, shares of Bank of America, which also reported Q3 earnings and beat estimates, were up 3.1%. Rival bank Morgan Stanley is set to report its earnings on Wednesday. Analysts believe that Goldman Sachs remains highly geared towards and more reliant on an improved investment banking environment compared to its peers.
Goldman Sachs has been focusing on right-sizing its firm, with a headcount of 45,900 as of September, up 3% from the previous quarter but down nearly 7% from a year ago. The bank has made significant layoffs this year, including a round of cuts in January, the largest since the 2008 financial crisis. The chief financial officer, Denis Coleman, stated that the layoffs have put the bank in a better position to make more selective investments in headcount.