Last quarter, the question at (or at least for) Goldman was: Is this as bad as it gets?
David Solomon was trying to “put some things that we strategically decided to do behind us,” as he put it, while responding to Mike Mayo on the bank’s Q2 call.
There were concerns around equity capital markets and investment banking more generally, but the elephant in the room was plainly Solomon’s godforsaken foray into mass-market consumer banking, which some observers (not necessarily me) might be inclined to call one of the more embarrassing strategic blunders in the bank’s long and storied history.
To be sure, Goldman’s consumer push won’t land near the top of anyone’s “sins” list associated with the bank. Indeed, the irony is that Solomon was kinda, sorta trying to do actual “God’s work,” as Lloyd Blankfein infamously described banking in 2009, to jeers from the peanut gallery. There’s nothing especially nefarious about, for example, offering high-yield savings accounts to everyday people or partnering with Apple on a fun credit card offering, or at least nothing that would strike anyone as off-putting.
The problem was fairly straightforward: You can’t build a consumer franchise overnight, which is basically what Goldman tried to do, and there was always something oxymoronic about “Goldman Sachs, bank for the everyman.” Mass market banking isn’t Goldman’s pedigree.
And so, Solomon was eventually (begrudgingly) compelled to abandon his pipe dream and that process is nearly complete. Goldman’s Q3 results, released on Tuesday, included a pre-tax earnings hit of $203 million tied to the sale of GreenSky, the installment lender Goldman bought a couple of years ago. “We continue to make significant progress executing on our strategic priorities and we’re confident that the work we’re doing now provides us a much stronger platform for 2024,” Solomon remarked.
All told, “selected items” tied to those “strategic priorities” lopped $2.41 off EPS (a -$828 million net hit). But who’s counting at this point? For context, the EPS impact of “related items” last quarter was $3.95.
$728 million of the pre-tax, $993 million “selected items” impact was in AWM principal investments, including real estate. There was a $358 million impairment (it was $485 million last quarter) in asset and wealth management, where net revenues fell 20% YoY.
The unit showed a $212 million loss in equity investments attributed in part to property. That net loss was $403 million last quarter. There were also net losses from investments in public equities.
Platform Solutions, where GreenSky used to live, showed a $607 million pre-tax loss. That was far wider than expected. The Street was looking for a $410 million loss.
As I often joke, Platform Solutions is Goldman’s version of Meta’s Reality Labs: A money losing reminder of the CEO’s worst idea.
The good news is that $607 million in red ink actually counted as an improvement. Last quarter, the unit notched a record pre-tax loss of $872 million, more than double estimates.
Mercifully, Goldman’s traders decided to show up last quarter. FICC revenue of $3.38 billion was a sizable beat. Consensus there was $2.86 billion. Equities showed a beat too with nearly $3 billion in revenue. IB was… well, passable I guess. Revenue of $1.56 billion met expectations. The firm’s IB backlog was lower versus the end of Q2 and the end of 2022.
Solomon reiterated a familiar talking point. “I expect a continued recovery in both capital markets and strategic activity if conditions remain conducive,” he said. “As the leader in M&A advisory and equity underwriting, a resurgence in activity will undoubtedly be a tailwind for Goldman Sachs.” ECM activity picked up in recent weeks, but some high-profile IPOs haven’t performed well. As for M&A, the environment is still challenging.
Total global banking and markets revenue (so, IB and trading) was $8.01 billion at Goldman, a billion ahead of estimates. On the top line, Goldman’s net revenue of $11.82 billion was ahead of the $11.13 billion analysts expected. EPS was $5.47.
Ultimately, I suppose the answer to the question posed last quarter (was Q2 as bad as it gets?) is a cautious “Yes.” Tuesday’s results were far from perfect and it’s clear that “legacy” issues are still an overhang. But if you’re inclined to be generous, you might suggest that Solomon is slowly but surely turning the ship around.
I’d be remiss not to make the obvious (if cheap) joke: Solomon has retired his DJ alter ego. “D-Sol” is no longer available for public events, the FT reported this week.
“This is not news. David hasn’t publicly DJed an event in well over a year, which we have confirmed multiple times in the past,” an irritable-sounding spokesman said. “Music was not a distraction from David’s work. The media attention became a distraction.”
