After Dismal Q2, Goldman Sachs Hopeful For Rebound In Merger Activity

Goldman Sachs reported a dive in profits Wednesday on weak merger and acquisition activity, but shares rallied as executives said an improvement could be near.

While Chief Executive David Solomon described the second quarter as a "tough" period, he said on a conference call with analysts that "the environment feels better" in regards to market sentiment.

"If the environment feels better and the environment turns out to be better, you'll see better performance," Solomon said.

Profits came in at $1.1 billion, down 62 percent from the same period a year ago. Revenues fell eight percent to $10.9 billion.

The big investment bank, which has essentially abandoned a once-touted push to compete with retail banks for Main Street consumers, pointed to a "significant decline in industry-wide completed mergers and acquisitions transactions" as a drag on its global banking and markets division.

Revenues also tumbled in trades connected to fixed income, commodities and currencies; revenues were flat in equities trading.

Goldman also suffered a drop in revenues its other main division, asset and wealth management, where results were dented by $485 million in real estate investment writedowns.

Another problem area was Greensky, a fintech platform for home improvement loans that Goldman had acquired with fanfare in 2021 but is now looking to divest.

The bank suffered a pre-tax loss of $677 million on GreenSky.

And Goldman also took a $504 million impairment in its consumer platform, which includes Greensky.

Goldman announced a $2.2 billion all-stock acquisition of GreenSky in September 2021, with the deal closing at a valuation of $1.7 billion.

But Solomon described credit card partnerships with General Motors and Apple as "long-term partnerships," adding that Goldman was focused on improving their performance.

Solomon has come under scrutiny over his management of the bank's consumer banking business, which was begun by predecessor Lloyd Blankfein but aggressively expanded by Solomon.

The venture was seen as a way to diversify Goldman beyond its core businesses, which are heavily tied to Wall Street trading compared with rivals like JPMorgan Chase and Bank of America, which also have substantial retail banking operations.

Goldman's travails with GreenSky highlight "the firm's difficulties in executing its diversification strategy at exactly the moment that its core businesses face headwinds," said a note from Mark Narron, senior director at Fitch Ratings.

A recent Wall Street Journal expose described the bank as at "war with itself," pointing to widespread complaints from partners about Solomon that have included criticism of his unusual side habit of working as a disc jockey.

Solomon has been holding private meetings with Goldman partners to try to repair relations, the Journal reported.

On Wednesday, Goldman executives referenced the residual effects of the spring US banking crisis as a drag on market sentiment, further denting merger and acquisition activity in the second quarter.

But Solomon said investment banking operates in cycles, describing an upturn as inevitable.

"The services in advising, the need for mergers and consolidation... IPOs, equity financing, debt financing, that's a fundamental part of our economy," he said. "It's not going away. It's been depressed for the last four to six quarters."

Goldman shares, which were in negative territory in pre-market trading, rebounded as the call progressed. Near 1720 GMT, shares were at $342.24, up 1.4 percent.