Goldman Sachs’s profit tanked in the second quarter as the investment banking giant continued to struggle with the downturn in M&A activity while booking rising costs.
Profit in the second quarter fell to $1.1bn, 62 per cent lower than last year while revenue fell eight per cent.
The drop was primarily driven by a decline in Goldman’s core business areas. Investment banking fees fell 20 per cent compared to last year, with a particularly steep fall in advisory revenue. Goldman also reported a 26 per cent fall in revenue from fixed income, an area of weakness for many banks this quarter.
The fall in advisory revenue reflected “a significant decline in industry-wide completed mergers and acquisitions transactions,” the bank said. Chair and chief executive David Solomon said the results were “solid” in an environment with “cyclically low activity levels”.
Alongside the slump in investment banking revenue, Goldman’s operating expenses were 12 per cent higher than last year due to writedowns.
The bank booked a $504m impairment related to its Greensky business, which offers loans for home improvement, and a $485m impairment from its consolidated real estate portfolio.
Goldman’s expansion into consumer products has been both expensive and divisive, with Solomon signalling earlier this year that the bank was considering a sale. He has suggested that the bank will return its focus to investment banking.
“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.
The results come off the back off a difficult start to the year for Goldman. In the first quarter, profit dropped by $2bn year-on-year due to the steep decline in dealmaking
Dealmaking has remained subdued in 2023 after 2022 was impacted by surging inflation and geopolitical volatility. Overall global M&A value is down 44 per cent in the first five months of 2023.
Morgan Stanley and Citi, who have already released results for the second quarter, have also been hit by the continued slump in dealmaking, with Citi boss Jane Fraser noting “the long-awaited rebound in investment banking has yet to materialise”.