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Goldman Sachs Group Inc.’s stock reversed course and rose Wednesday after the bank signaled better times ahead for deal making, despite second-quarter earnings that fell short of Wall Street’s lowered expectations.
It was the only profit-target miss among the six largest U.S. banks, at a time when Goldman Sachs CEO David Solomon remains in the hot seat with some partners at the company over missteps in the bank’s consumer business and other issues.
Goldman Sachs’s
GS,
stock rose 1.1%, after moving lower earlier in the session, after Solomon said he’s seeing continued signs of activity after a lull in capital-markets activity and private-equity deal making.
“The environment feels better,” Solomon said on the company’s quarterly conference call with Wall Street analysts.
The current downturn has lasted at least four but as many as six quarters since the start of 2022, which is roughly the length of past downturns, he said.
“It definitely feels better over the course of the last six to eight weeks than it did earlier in the year,” Solomon said. Investment banking has fallen to 10-year lows and that’s not expected to continue, he said.
Goldman said it’s in the middle of its process to sell its GreenSky lending unit but didn’t give a timeline on executing a deal. The bank does not expect to book any more goodwill write-downs on the business.
Goldman’s rising expenses ate into its profit, but on the plus side, the bank beat revenue projections on strength in its global banking and markets unit.
The bank also booked a $485 million impairment charge related to consolidated real-estate investments both in depreciation and amortization, as well as a $504 million loss in its GreenSky consumer-lending business.
Goldman Sachs said its earnings for the three months ending June 30 fell by more than half to $1.07 billion, or $3.08 a share, from $2.79 billion, or $7.73 a share, in the year-ago period.
Goldman fell short of analysts’ expectations for per-share earnings of $3.16, according to estimates compiled by FactSet.
Goldman Sachs’s second-quarter revenue fell to $10.9 billion from $11.86 billion, but that was ahead of the analyst estimate of $10.61 billion.
In a prepared statement, Solomon said the second quarter reflected “continued strategic execution of our goals” with “solid return” in the global banking and markets unit despite an “environment with cyclically low” levels of activity.
“I remain fully confident that continued execution will enable us to deliver on our through-the-cycle return targets and create significant value for shareholders,” Solomon said.
KBW analyst David Konrad reiterated an outperform rating on Goldman Sachs and said the bank’s preprovision net revenue beat his target by 15 cents a share.
“We expected a noisy quarter and that is what we got,” Konrad said. “Although we expect further adjustments over the next few quarters, we like the stock here trading just above tangible book value, with building momentum in capital markets.”
Analyst projections for Goldman Sachs’s second-quarter profit have moved down in recent months, with the estimate at $7.84 a share on March 31, according to FactSet data.
Goldman’s second-quarter operating expenses increased by 12% to $8.54 billion, well above the analyst estimate of $7.67 billion.
Goldman said the increase in operating expenses reflected the $504 million impairment of goodwill related to its GreenSky consumer platforms. Goldman has reportedly been trying to sell the installment-loan business of GreenSky after paying $1.7 billion for it in 2021.
Goldman is also reportedly selling its credit-card alliances with Apple Inc.
AAPL,
and General Motors Co.
GM,
but has been mum about that thus far. On a conference call with analysts, Solomon did not confirm any plans to sell the businesses and said the alliances are long-term partnerships, that Goldman has been working to improve operations and that the bank is making progress on this front. Solomon also said the high-yield savings program it launched with Apple in April has been doing well.
Also read: Goldman discloses losses in unit that houses Apple Card, GreenSky operations
Goldman’s investment-banking fees fell 20% to $1.43 billion, short of the analyst estimate of $1.49 billion.
Asset- and wealth-management net revenue fell 4% to $3.05 billion, below the estimate of $3.69 billion.
Global banking and markets revenue fell 14% to $7.19 billion but beat the analyst estimate of $6.65 billion.
Goldman increased its quarterly dividend to $2.75 per common share from $2.50 per share.
Prior to Wednesday’s trades, Goldman Sachs’s stock was down 1.8% so far in 2023, compared with an 18.6% increase in the S&P 500
SPX,
Also read: Banks are doing better than feared as stocks rally and Bank of America builds cash
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