Goldman Sachs reported yesterday an annualized return on equity of 4% for the second quarter of 2023, less than half the 10.6% the company reported a year earlier, reflecting losses related to the decline in value of earlier investments.
Revenue of $10.9 billion was down 8% from the year-ago period while net income attributable to common shareholders of $1.07 billion was down 62% from a year earlier.
Securities trading revenues were down 14%, and investment banking fees, which include deal advisory and underwriting services, were down 20%.
Goldman took a $677 million write-down to reflect the declining value of buy-now-pay-later operator GreenSky, which it bought in March 2022.
It also wrote down investments of $1.2 billion, mainly related to commercial real estate. This was offset by a $154 million gain on the sale of consumer loans.
Writedowns meant that Goldman earned only half the return on equity that Morgan Stanley did in the three months through June.
The embarrassment goes beyond one bad quarter. Since Solomon took the helm in 2018, Goldman’s valuation has fallen as a multiple of earnings and book value compared to Morgan Stanley.
While both firms have suffered a terrible slump in investment banking fees, Morgan Stanley is further ahead in its expansion into asset management, which is still growing.
In terms of pure profitability, however, the two aren’t that different. Without those writedowns, Goldman would have narrowly beaten its rival’s return on equity this quarter – and the two are pretty much tied over time, too.
Goldman, meanwhile, still dominates the markets. Over the past 12 months, the firm’s traders have done 60% better than they did in 2019 – a bigger jump than any of its big rivals.
