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Dealmaking Mitigates The Impact Of Greensky And Real Estate, Goldman's Reports Better Than Expected Earnings

Dealmaking Mitigates The Impact Of Greensky And Real Estate, Goldman's Reports Better Than Expected Earnings
With a tentative comeback in dealmaking offsetting the $864 million writedown relating to its GreenSky fintech firm and real estate investments, Goldman Sachs' third-quarter profit decreased less than anticipated.
The Wall Street juggernaut reported a 33% decline in net earnings to $2.06 billion, or $5.47 per share, on Tuesday. According to LSEG statistics, analysts had projected a profit of $5.31 per share on average.
In choppy premarket trade, shares of the bank edged up 0.3% to $315.30.
"The work we're doing now provides us a much stronger platform for 2024. I also expect a continued recovery in both capital markets and strategic activity if conditions remain conducive," CEO David Solomon said in a statement.
Instacart, a supermarket delivery service, and Arm Holdings, a semiconductor designer for SoftBank Group, were two prominent IPOs that Goldman underwrote in September.
The share sales raised hopes for a revival in the IPO market, but subsequent disappointing results and the cool response to German shoe manufacturer Birkenstock have cast doubt on those hopes.
As the market for initial public offerings heated up and debt underwriting activity restarted, Goldman's investment banking fees, which totaled $1.55 billion, remained basically flat from the previous year.
Although numerous bank CEOs have stated they anticipated borrowing costs to remain higher for longer, the U.S. Federal Reserve may increase interest rates one more time this year.
It was still burdened by Goldman's disastrous effort into consumer banking, which has lost $3 billion over three years.
GreenSky, which helps people get home improvement loans, was sold to a group of investment firms led by Sixth Street Partners, and the bank made a $506 million write-down on it.
Although it was valued at $2.2 billion when the deal was first announced in 2021, it was purchased for $1.7 billion last year. In the second quarter, Goldman charged $504 million for GreenSky.
Real estate investments also contributed to a decline in profitability, with the bank recording a $358 million impairment charge as opposed to a $485 million charge in the second quarter.
This caused its asset and wealth management unit's income, which fell 20% to $3.23 billion, to suffer.
With interest rates rising, commercial real estate loans have become a concern for banks and made up 14% of Goldman's total loan portfolio.
To develop in asset and wealth management, Solomon has switched the company's focus back to its established strengths in investment banking and trading.
Peers' results in investment banking have been inconsistent; JPMorgan Chase reported a 6% fall in revenue, while Citigroup reported a 34% increase in fees. On Wednesday, Morgan Stanley is expected to release its profits.
At the end of September, Goldman had 45,900 employees, an increase of 3% from the previous quarter but a decrease of roughly 7% from the same time last year.
This year, the bank has let go of thousands of staff, with the biggest round of layoffs occurring in January since the financial crisis of 2008.

Christopher J. Mitchell

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