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Published April 18, 2023
Updated April 18, 2023, 4:28 p.m. ET
Goldman Sachs revealed a painful drop in quarterly profits Tuesday, slammed by a dealmaking slump and a major loss tied to the money-losing consumer bank Marcus.
The Wall Street giant disclosed a $470 million loss “related to a partial sale of the Marcus loans portfolio” as Goldman pursues an overhaul of its unprofitable online banking initiative. Goldman said it has transferred the rest of its Marcus loan portfolio to held for sale from held to maturity.
Goldman reported net earnings of $3.23 billion, or $8.79 per share in the first quarter. That figure marked an 18% decline compared to the same quarter one year ago – though it topped Wall Street’s expectation for earnings of $8.14 per share, according to FactSet data.
The firm’s quarterly revenue was $12.22 billion – down by 5% compared to one year ago and far short of the $12.76 billion projected by Wall Street analysts.
Goldman Sachs and other banks, both large and small, faced major headwinds in the first quarter as the sudden collapse of Silicon Valley Bank and Signature Bank of New York triggered upheaval in the sector.
“The events of the first quarter acted as another real-life stress test, demonstrating the resilience of Goldman Sachs and the nation’s largest financial institutions,” Goldman Sachs CEO David Solomon said in a statement.
“Our deeply rooted risk management culture, strong liquidity and robust capital position enabled us to continue to support our clients and deliver solid performance,” he added.
In February, Solomon said Goldman was exploring “strategic alternatives” for Marcus, which has lost more than $3 billion since its debut in 2020. The bank is attempting to stabilize its business amidst an internal shift that included thousands of layoffs.
Shares of Goldman Sachs fell 1.7% to $333.91 on Tuesday.
Goldman said its $470 million loss on the partial sale of Marcus loans was “largely offset” by a $440 million reserve release. The $440 million release contributed to Goldman’s earnings beat by contributing $1.20 to earnings per share, according to a Wells Fargo note obtained by CNBC.
Goldman also took a $355 million hit related to its real estate investments.
Fixed-income trading revenue fell 17% to $3.93 billion in the first quarter. Goldman attributed the shortfall to “significantly lower new revenues in currencies and commodities.”
Investment banking revenue sank 26% to $1.58 billion as Goldman and other firms weather on ongoing industrywide slowdown in mergers & acquisitions activity.
Goldman is the only major Wall Street bank to post a decline in fixed-income trading revenue so far this earnings season, according to Bloomberg.
As a seasoned financial expert with a comprehensive understanding of the banking and investment landscape, I bring to the table a wealth of knowledge and experience that is crucial for dissecting the recent developments at Goldman Sachs, as reported in the article dated April 18, 2023.
Goldman Sachs, a stalwart on Wall Street, recently unveiled a substantial drop in its quarterly profits. This decline, amounting to an 18% reduction in net earnings compared to the same quarter the previous year, was primarily attributed to a dealmaking slump and a significant loss linked to the online banking initiative, Marcus. The loss amounted to a staggering $470 million, which was intricately tied to a partial sale of the Marcus loans portfolio. This move was part of Goldman's strategic overhaul aimed at resuscitating its unprofitable online banking venture.
The financial results disclosed by Goldman Sachs in the first quarter are emblematic of the broader challenges faced by the banking industry. Notably, the sudden collapse of Silicon Valley Bank and Signature Bank of New York cast a shadow over the sector, creating headwinds for both large and small banks. Despite these challenges, Goldman Sachs CEO David Solomon emphasized the resilience of the institution, attributing its ability to weather the storm to a deeply rooted risk management culture, strong liquidity, and a robust capital position.
One of the focal points of Goldman's financial maneuvering was the online banking initiative, Marcus, which has been a source of concern for the bank since its debut in 2020. Having incurred losses exceeding $3 billion, Goldman is actively exploring strategic alternatives for Marcus. This effort is part of a broader internal shift within the bank, which includes significant layoffs as it strives to stabilize its business.
Delving deeper into the financials, Goldman Sachs reported quarterly revenue of $12.22 billion, a 5% decline compared to the previous year and falling short of the $12.76 billion projected by Wall Street analysts. The breakdown of the revenue reveals a 17% decrease in fixed-income trading revenue, amounting to $3.93 billion. This decline is attributed to significantly lower new revenues in currencies and commodities. Furthermore, investment banking revenue took a substantial hit, sinking 26% to $1.58 billion, reflecting an industrywide slowdown in mergers and acquisitions activity.
Notably, Goldman Sachs stands out among its Wall Street peers as the only major bank to post a decline in fixed-income trading revenue during this earnings season, according to Bloomberg. This distinct position adds a layer of complexity to the broader narrative, indicating that Goldman's challenges may be unique within the context of the industry.
In conclusion, the intricacies of Goldman Sachs' financial performance underscore the dynamic nature of the banking sector, influenced by both internal strategic shifts and external market forces. The ongoing saga of Marcus and the broader challenges faced by Goldman Sachs serve as a microcosm of the complexities inherent in navigating the ever-changing landscape of finance.
