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Goldman Sachs Faces 60% Profit Drop, Yet Share Prices Lift on Improved Outlook

The second quarter witnessed Goldman Sachs' earnings plummet to a three-year low due to struggling consumer businesses and property investments, while shares rose on a promising outlook.

Goldman Sachs
Goldman Sachs

Q2 Decline: Goldman Sachs' Profits Miss Estimates

Goldman Sachs saw a dramatic 60% drop in its Q2 profits, far below projections, primarily due to the markdowns on the firm's consumer-centric business and property investments. The setback is the most severe since Q2 of 2020 when the bank had to make write-offs because of a corruption controversy tied to the Malaysian state fund, 1MDB.

David Solomon Foresees Recovery Despite Profits Plunge

Despite the disappointing figures, shares rose nearly 2% following CEO David Solomon's optimistic view of a revival in investment banking. Speaking to analysts, Solomon described the economic environment as much improved over the past few weeks, hinting at favorable inflation data, improved client sentiment, and a resurgence in client discussions about mergers and acquisitions.

GreenSky Writedowns Contribute to Profit Decline

Goldman Sachs recorded a hefty $1.4 billion in write-offs related to its GreenSky fintech business in the second quarter. The fintech business facilitates home improvement loans to consumers and real estate investments. It also incurred credit losses in its consumer loans and credit card businesses.

Goldman Sachs's Earnings Fall, Analysts Stay Positive

The Wall Street firm reported a 60% dip in earnings, to $3.08 per share for the quarter ending June 30, as compared to $7.73 per share a year earlier. Although this was below the expected profit of $3.18 per share, according to Refinitiv data, analysts like Citigroup's Keith Horowitz maintained a positive stance, noting that core trends remained generally positive, bolstered by equities financing and investment banking.

Difficulties in Diversification Strategy, and Future Plans

The bank's diversification challenges were highlighted by the small goodwill impairment related to GreenSky. Revenue from Goldman Sachs' asset and wealth management operations declined 4%, hurt by losses from real estate investments, but the unit did register record fees and assets under supervision. The bank aims to sell some of its commercial real estate investments in the next three to five years.

Contrasting Performance with Wall Street Rivals

Goldman Sachs's results starkly contrast with Wall Street peers like JPMorgan Chase and Morgan Stanley, who exceeded expectations. Executives pointed to a resilient economy but warned that high borrowing costs would start impacting loan demand later this year.

Goldman Sachs Responds to Economic Uncertainty with Cost-cutting Measures

The bank has resorted to staff layoffs to cut costs amid economic uncertainty and a slump in deal-making. More layoffs are expected this year if revenues don't rebound. As of now, Goldman Sachs' workforce has contracted by 2% from Q1 to a total of 44,600 employees.