Banks

Goldman Sachs shares fall after earnings miss Street estimates

Key Points
  • The bank posted profit of $1.88 billion, or $4.79 a share, below the $4.81 expected by analysts, according to Refinitiv.
  • Revenue came in at $8.32 billion, slightly above the $8.31 billion expected.
  • The shares declined by 3.3%.
  • Among Goldman's four main businesses, its investing and lending division missed expectations by the largest degree.
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Goldman Sachs shares fell Tuesday after the firm reported third-quarter profit below Wall Street expectations.

The bank said profit slumped 26% to $1.88 billion, or $4.79 a share, below the $4.81 expected by analysts, according to Refinitiv. Revenue fell 6% to $8.32 billion, slightly above the $8.31 billion expected, on lower results in the firm's investing and lending and investment banking divisions. The firm also set aside $291 million for credit losses in the quarter, 67% higher than a year earlier.

Goldman shares declined by 3.3%.

Chief Executive Officer David Solomon has been at the helm of Goldman Sachs for a full year, but it's clear that the bank is still a work in progress.

"Our results through the third quarter reflect the underlying strength of our global client franchise and its ability to produce solid results in the context of a mixed operating environment," Solomon said in the earnings release. "We continue to execute on our strategic priorities, including investing in important growth opportunities in our existing and new businesses."

Among its four main businesses, the bank's investing and lending division missed expectations by the largest degree, despite those figures coming down in recent weeks. The division produced $1.68 billion in revenue, a 17% drop from a year earlier and below the $1.74 billion estimate.

The business was stung by its holdings in Uber, Avantor and Tradeweb, which drove losses of $267 million in the quarter, Goldman said.

Trading revenue modestly exceeded expectations: Equities trading desks produced $1.88 billion, exceeding the $1.79 billion estimate of analysts surveyed by FactSet. Bond trading generated $1.41 billion in revenue, above the $1.36 billion estimate.

Investment banking produced $1.69 billion in revenue, just under the $1.72 billion estimate. Investment management matched the $1.67 billion estimate.

"You had reasonable trading results, but investment banking was a little light, and you had some negative marks on investments," said Devin Ryan, analyst at JMP Securities. "To me, Goldman comes down to the longer term transformation that's occurring. It's hard for people to envision where the revenues will come from, but we're pretty bullish on what they're building, particularly on the digital consumer side."

One of Solomon's key initiatives since taking over in October 2018 — an internal review of the bank's operations — has sparked departures among several longtime Goldman partners, including trading head Marty Chavez and chief information officer Elisha Wiesel.

The review, meant to boost shareholder returns at the New York-based bank, has also taken longer than initially promised, sowing impatience among investors eager for a resurgence at Goldman. The 150-year-old investment bank is plowing money into new ventures including retail banking and corporate cash management to diversify from its traditional strengths in Wall Street trading, which has been mired in the industry's multiyear slowdown.

Another area that investors will scrutinize is the bank's holdings in WeWork and other stakes that lost value in the third quarter. The bank could post a $264 million writedown on its holdings in WeWork, Morgan Stanley analyst Betsy Graseck said in a research note.

While the bank's investing and lending division, where private equity stakes and public holdings are reported, has helped it beat analysts' profit estimates in previous quarters, investors may complain that it's a source of earnings volatility in declining markets.

Other big banks also posted earnings on Tuesday. J.P. Morgan Chase reported record revenue and Citigroup beat earnings estimates.

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Key Points
  • The bank says third-quarter profit rose 8% to $9.1 billion, or $2.68 a share, exceeding the $2.45 estimate of analysts surveyed by Refinitiv.
  • Revenue also rose 8% to $30.1 billion, exceeding the $28.5 billion estimate, and the bank cited growth in home loans, auto and credit cards.
  • The stock rose 3.1%.