Steep Profit Fall at Goldman Sachs Highlights Wall St. Giant’s Woes
The Numbers
Goldman Sachs reported a profit of $1.1 billion in the second quarter, down more than 60 percent from last year.
The bank in particular highlighted write-downs in the value of its commercial real estate portfolio, a $1.2 billion hit to profit, and the buy-now-pay-later firm GreenSky, which subtracted nearly $700 million from its earnings. Goldman acquired GreenSky less than two years ago, as part of an ill-fated foray into consumer lending.
Quarterly revenue, at $10.9 billion, was 8 percent lower than last year.
The bank employed 44,600 people at the end of June, down 2,400 from the same period last year. Goldman has gone through at least three rounds of layoffs this year, taking head count down 8 percent so far this year.
Takeaways
This seems to have been a rip-the-Band-Aid-off quarter for Goldman. The real estate write-down, in particular, appeared to pack potential losses into the period.
There are, however, good reasons for the move. Remote or hybrid work appears here to stay, and that has bleak implications for office space and landlords in many cities. Having already conceded some losses in that area, Goldman can now shift attention to other areas of the business like investment banking, which tends to ebb and flow.
“It definitely feels better over the course of the last six to eight weeks than it felt earlier in the year,” Mr. Solomon said.
Context
The big question for Mr. Solomon is whether he can convince investors — and many inside his own firm — of a return to the much-feared Goldman of yore.
The bank is nearly a year into an extended apologia for its consumer woes, which at one point included Marcus, a consumer division named after the company’s founder, credit-card offerings and savings accounts aimed at the mass market. Earlier this year, the bank said it had lost more than $3 billion tied to those efforts since December 2020.
The bank is still unwinding the businesses, at a loss, and it may expect more ugly headlines until that is finished.
What’s Next
Unlike more diversified lenders like JPMorgan Chase, Goldman relies heavily on its Wall Street franchise, and corporate activity has been muted in the face of economic uncertainty, rising interest rates and the like. That means that if there is a prolonged chill in deal-making, there may be little that the bank can do to fully insulate itself.