Goldman Sachs reported a 36% drop in its third quarter profits. This is the eighth consecutive quarter that earnings have fallen. The bank has been struggling with losses after its withdrawal from retail banking, and writing downs on real estate investments.
Goldman has seen its investment banking revenue increase for the first year in nearly two years, a sign the dealmaking slump may be ending.
David Solomon, Goldman’s chief executive officer, told analysts that if conditions remained favorable he expected a continuing recovery in both the capital markets and strategic activities.
Goldman reported on Tuesday that the net income for shareholders was $1.88bn. This is down from $2.96bn one year ago and slightly below analysts’ expectations of $1.92bn.
Goldman’s profits were hurt by the loss it suffered on the sale to a consortium led by private equity of the home improvement lending platform GreenSky, and also the sale of “substantially” all of the Marcus loan portfolio as the bank nears its exit from the retail lending business.
Bank also suffered a $358mn impairment in its Asset and Wealth Management division on its real estate investment.
Goldman warned it would “moderate the pace” of share buybacks during the last three months of 2023 due to the uncertainty surrounding proposed new US Capital Rules, which would in their current format increase the amount capital that big banks such as Goldman would be required to hold.
Solomon, an analyst, said: “Frankly, I think the proposed rules are way too strict and don’t take into account the many improvements that the biggest banks have made as a result Dodd-Frank reforms and other reforms.”
The fixed income, currency and commodities trading revenues were $3.4bn. This was down 6% from the previous year, but above analysts’ expectations of $2.9bn. Unlike peers JPMorgan Chase and Morgan Stanley, Goldman lacks the same diversification in other businesses to compensate for a period of weaker performance in its core investment banking and trading activities.
Solomon, who was criticized by some of his employees for the way he ran the bank, outlined a diversification strategy into asset and wealth-management.
Goldman’s profits are still largely derived from these activities. Asset and Wealth Management division of the bank reported revenues of $3.2bn in the third quarter. This was a 20 percent drop from the same time last year, due in part to the losses on the lender’s investments in real estate.
Goldman has also increased the percentage of revenues that it pays to its bankers. This is up to 34.5 percent so far in 2023 from the 34 percent in the first half. The Wall Street firm claims this was necessary to reward their top talent.
Solomon faced grumbling from employees all year who felt the bank would cut pay too much in 2022 for even top performers.