But the stock surged more than 1% as CEO David Solomon said there were signs of a recovery in investment banking.
The results were the worst for the Wall Street giant since the second quarter of 2020, when it posted write-downs in a corruption scandal linked to Malaysian state fund 1MDB.
“I’ve definitely felt better in the last six or eight weeks,” Solomon told analysts on a conference call. “Obviously a tough quarter,” he said, but added, “I feel the environment has improved.”
He cited increased activity in the equity capital markets and a resurgence of client discussions about mergers and acquisitions.
Goldman Sachs recorded a $1.4 billion write-down in the second quarter related to its GreenSky fintech business, which encourages consumer home improvement loans and real estate investment. He also recorded credit losses related to consumer loans and businesses.
“This moment in the business cycle is creating significant headwinds for Goldman Sachs,” Solomon said on a conference call with analysts. “We are making tough decisions to drive the strategic evolution of the company. Given both of these factors, it is not surprising that we are headed for a period of weaker performance.” Earnings of $3.08 per share for the three months ended June 30 were down 60% from $7.73 per share in the same period last year, the bank reported Wednesday. Analysts had expected earnings of $3.18 a share, according to Refinitiv data.
“The hurdles going into the quarter were relatively low,” said Keith Horowitz, an analyst at Citigroup. “Comparing the results to our estimates, we find that the core trend is generally positive, thanks to equity lending and investment banking.”
Net income for the second quarter was $1.07 billion, down 62% from $2.79 billion in the same period last year.
Goldman agreed to acquire GreenSky for $2.2 billion in 2021, and has since completed the transaction for $1.7 billion.
Goldman’s Marcus division was also included in the combined wealth and wealth management division last year as investment banks began to pull out of retail banking.
The sale of “almost all of the rest” of the Marcus Loan portfolio also resulted in a $100 million gain for Goldman.
Earnings at Goldman’s Wealth and Wealth Management Division fell 4% year-on-year due to losses on real estate investments, but the division posted record fees and assets under supervision.
The bank plans to sell some of its commercial real estate investments within three to five years.
The results contrast with major Wall Street rivals such as JPMorgan Chase and Morgan Stanley, which have beaten earnings expectations. Executives cited the resilience of the economy but warned that high borrowing costs would start weighing on loan demand later this year.
Goldman’s investment banking fees fell 20% to $1.43 billion in the quarter. His trading income in bonds, currencies and commodities fell 26%, while stocks rose 1%.
Aggressive rate hikes by the Fed to curb inflation have led officials to forecast a slowdown in the second half of the year.
An uncertain outlook has weighed on mergers and acquisitions, while a spate of initial public offerings (IPOs) has fueled optimism about an early-stage economic recovery.
Goldman Sachs and peer Morgan Stanley said on Tuesday that earnings from its investment banking division were in line with a year earlier, but its trading business was sluggish.
Analysts are optimistic that the continued rally in the stock market will spur trading and see more IPO hopefuls take their shares public in the coming months.
However, global M&A activity fell 36% year-on-year in the second quarter, and uncertainty about the economic trajectory remains an obstacle.
Goldman Sachs laid off thousands of workers to cut costs and soften the blow of a slump in trading. The company expects more workers to be laid off this year if earnings do not recover, people familiar with the matter told Reuters earlier this year.
The bank’s workforce fell 2% from the first quarter to 44,600.
