Goldman Sachs earnings hit by slowing trade, retail banking pullback

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Goldman Sachs slumped to its lowest quarterly profit in three years as a costly withdrawal from retail banking added to the pain of slowing industry-wide trading and trading.

Falling profits are putting further pressure on chief executive David Solomon, who is trying to pull the bank out of its toughest time since taking office in 2018.

Net profit for the quarter fell nearly two-thirds to $1.1 billion in the second quarter from $2.8 billion a year earlier, Goldman said on Wednesday, in line with analysts’ expectations.

The Wall Street bank was hit hard by prolonged weakness in investment banking and trading, its main profit drivers. Investment banking revenue fell 20% to $1.4 billion while revenue from trading equities, fixed income, currencies and commodities fell 12% to 5 .7 billion.

An already trying quarter was also marred by several charges, including a $504 million write-down on GreenSky, an online lender acquired in 2021 as part of Solomon’s ill-fated push into retail banking. Goldman also recorded a $485 million write-down on its real estate investments.

Column chart of net income to shareholders in billions of dollars showing that Goldman suffers a slowdown in profits in the second quarter

Oppenheimer research analyst Chris Kotowski described the results as a “kitchen sink-like quarter” with around $1 billion in one-time charges, which could help clear the decks for Solomon going forward.

Last year, Solomon walked away from the group’s much-heralded expansion into consumer banking, re-emphasizing Goldman’s investment banking and trading businesses as the two faced under the most difficult conditions for several years.

“I remain fully confident that continued execution will allow us to meet our return targets throughout the cycle and create meaningful shareholder value,” Solomon said Wednesday.

The drop in investment banking revenue matched analysts’ expectations, but was steeper than the 5.6% decline at JPMorgan Chase. Investment banking revenue, meanwhile, was flat at close rival Morgan Stanley and up 7% at Bank of America. They fell by 30% at Citigroup.

Line chart of fees in billions of dollars showing that investment banking fees fell for most banks in the second quarter

Trading revenue is still above pre-pandemic levels, but activity is booming due to financial market volatility during the pandemic, interest rate hikes by central banks and war between Russia and Ukraine.

Within Goldman’s trading division, equity revenue edged up 1% to nearly $3 billion, beating estimates of $2.4 billion. That helped bring total revenue for the quarter to $10.9 billion, down 8% from a year earlier but better than expected.

Fixed income and commodities traders at Goldman fared less well, with revenue down 26% to $2.7 billion, behind the $2.8 billion that analysts had expected.

Line chart of stock trading revenue in billions of dollars showing Goldman's stock trading business outperformed its peers in the second quarter

Goldman’s asset and wealth management division, a cornerstone of Solomon’s efforts to diversify Goldman’s business, reported revenue of $3 billion, down 4% from the same period last year and lagging analysts’ estimates of $3.5 billion. The results were penalized by the depreciation linked to real estate investments.

Goldman’s return on equity, a key measure of profitability, was 4% for the quarter, well below peers and far from the bank’s target of 14-16%.

Shares of the bank, which have fallen about 2% this year, fell slightly in New York. Analysts were unusually divided on the severity of the quarter for the bank.

Additional reporting by Stephen Gandel

This article has been edited to clarify that Goldman’s second quarter earnings are the lowest since 2020