Global investment bank Goldman Sachs embarrassed itself by being the only major Wall Street bank to report second-quarter results that fell short of market expectations. With a weak investment banking division and significant losses in consumer finance and other areas, net profit was halved.
According to Goldman Sachs on the 19th (local time), net profit for the second quarter of this year was $1.22 billion, a sharp 58% decline compared to the same period last year. Earnings per share (EPS) stood at $3.08, well below the market consensus of $3.18. This contrasts with earlier earnings surprises reported by JP Morgan Chase, Wells Fargo, Bank of America (BoA), and Morgan Stanley.
Goldman Sachs is the only major Wall Street bank to report EPS below market expectations. The largest U.S. bank, JP Morgan, saw its second-quarter net profit surge 67%. Wells Fargo and BoA also posted net profit increases of 57% and 19%, respectively, compared to a year ago. These gains reflect the benefits from high interest rates and the ripple effects of the small and medium bank crisis. Although Citigroup and Morgan Stanley experienced declines in net profit, their results still exceeded market forecasts.
Goldman Sachs’ earnings miss is interpreted as losses stemming from its consumer finance business and expanded investments in commercial real estate. In particular, it suffered significant losses from Greensky, a fintech company it acquired two years ago and is currently in the process of selling. Goldman Sachs confirmed that asset impairment losses related to consumer lending platforms, including Greensky, amounted to $540 million. Additionally, the value of its commercial real estate holdings declined by $485 million amid falling commercial property prices.
Unlike other major banks that have been retreating from consumer finance, Goldman Sachs had ambitiously been strengthening this segment. However, this experiment appears to have ended in failure. The Wall Street Journal (WSJ) noted that the most striking aspect of the earnings report was the impairment loss related to Greensky, stating, "Once a core part of Goldman Sachs’ consumer finance strategy, Greensky is now in the process of being sold, and the consumer finance business itself is being scaled back." Previously, the publication reported that Goldman Sachs is also exploring options to wind down its credit card partnership with Apple.
Moreover, the investment banking division also underperformed. This weakness was commonly observed among banks like JP Morgan and Morgan Stanley, which recently reported earnings surprises. According to Dealogic, the total global mergers and acquisitions (M&A) volume in the first half of the year fell 39% compared to the previous year. The size of initial public offerings (IPOs) also shrank by 32%.
Goldman Sachs’ second-quarter revenue was $10.9 billion, down 8% year-over-year. However, this slightly exceeded Wall Street’s forecast of $10.6 billion.
Meanwhile, on the New York Stock Exchange that day, Goldman Sachs’ stock price was trading about 1.8% higher compared to the previous session.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
