Oct 17 (Reuters) - Goldman Sachs' (GS.N) third-quarter profit dropped less than expected as a nascent recovery in dealmaking offset the $864 million writedown related to its GreenSky fintech business and real estate investments.
The Wall Street giant's net profit slumped 33% to $2.06 billion, or $5.47 per share, it said on Tuesday. Analysts on average had expected a profit of $5.31 per share, according to LSEG data.
Shares of the bank inched up 0.3% at $315.30 in volatile premarket trading.
"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.
Goldman was an underwriter for high-profile initial public offerings (IPOs) in September, including SoftBank Group's (9984.T) chip designer Arm Holdings and grocery delivery app Instacart (CART.O).
The share sales sparked optimism about a recovery in the IPO market, but poor performance after debuts and the lukewarm reception to German sandal maker Birkenstock (BIRK.N) have raised doubts about how strong the market is.
Goldman's investment banking fees of $1.55 billion were largely unchanged from last year as debt underwriting activity resumed and the market for initial public offerings picked up.
The U.S. Federal Reserve may raise interest rates one more time this year, while several bank executives have said they expected borrowing costs to stay higher for longer.
CONSUMER BANKING WEAKNESS LINGERS
Goldman's ill-fated foray into consumer banking, which has lost $3 billion over three years, continued to weigh.
The bank took a $506 million writedown on GreenSky, which facilitates home improvement loans for consumers and was sold to a consortium of investment firms led by Sixth Street Partners.
It was bought for $1.7 billion last year although it was valued at $2.2 billion when the deal was first announced in 2021. Goldman took a charge of $504 million on GreenSky in the second quarter.
Real estate investments were another drag on earnings as the bank booked an impairment charge of $358 million compared with $485 million in the second quarter.
That weighed on revenue from its asset and wealth management unit, which slipped 20% to $3.23 billion.
"Going forward, Goldman Sachs will likely face less headwinds from severance costs, CRE impairments and consumer loan exits," said David Fanger, a senior vice president at rating agency Moody's Investors Service.
"But it remains highly geared toward and more reliant on an improved investment banking environment than its peers."
Commercial real estate loans, which have emerged as a risk for banks as interest rates rise, accounted for 14% of the total loan portfolio of Goldman.
Solomon has shifted the firm's focus back to its traditional strengths - investment banking and trading - and aims to grow in asset and wealth management.
Investment banking results have been mixed for peers, with JPMorgan Chase (JPM.N) reporting a 6% decline in revenue, while Citigroup (C.N) said fees jumped 34%. Morgan Stanley (MS.N) is set to report its earnings on Wednesday.
Goldman had a headcount of 45,900 as of September end, up 3% from a quarter ago, but down nearly 7% from the year-ago period. The bank has laid off thousands of employees this year, including a round of cuts in January that was its largest since the 2008 financial crisis.
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Reporting by Niket Nishant and Noor Zainab Hussain in Bengaluru and Saeed Azhar in New York; Editing by Lananh Nguyen, Arun Koyyur and Nick Zieminski
Our Standards: The Thomson Reuters Trust Principles.
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