Bank’s Woes Exposed as Goldman Sachs Reports Significant Drop in Profit

The Numbers

Goldman Sachs recorded a profit of $1.1 billion in the second quarter, showing a decline of over 60 percent compared to the previous year.

Notably, the bank experienced write-downs in the value of its commercial real estate portfolio, resulting in a $1.2 billion reduction in profit. Additionally, the buy-now-pay-later firm GreenSky subtracted nearly $700 million from its earnings. Goldman acquired GreenSky less than two years ago in an attempt to venture into consumer lending, which turned out to be unsuccessful.

Quarterly revenue stood at $10.9 billion, representing an 8 percent decrease compared to the previous year.

As of June, the bank had a workforce of 44,600 people, which is 2,400 less than the same period last year. Goldman has undergone at least three rounds of layoffs this year, resulting in an overall 8 percent reduction in head count so far.

Takeaways

This quarter appears to have been a decisive period for Goldman Sachs. The real estate write-down, in particular, seemed to incorporate potential losses into the financial reports.

Nonetheless, there are valid reasons behind this action. Remote or hybrid work is becoming a prevalent and permanent trend, which has negative implications for office space and landlords in various cities. By addressing some of their losses in this area, Goldman can now shift its attention to other aspects of the business.

“This quarter reflects the ongoing execution of our strategic goals,” stated David Solomon, the Chief Executive Officer of Goldman.

Context

The main challenge for Mr. Solomon is to convince investors and even his own colleagues of a return to the feared reputation that Goldman Sachs held in the past.

Unlike diversified lenders like JPMorgan Chase, Goldman heavily relies on its Wall Street franchise, and with limited corporate activity due to economic uncertainty and rising interest rates, the bank may struggle to fully protect itself from any extended downturn in deal-making.

What’s Next

The bank has already spent nearly a year apologizing for its consumer-related problems, including its consumer division named Marcus after the company’s founder.

They are still in the process of winding down these businesses, which has resulted in losses, and it’s possible that more negative headlines may arise until the process is completed.