On Tuesday Goldman Sachs missed earnings expectations for the first time since David Solomon took over a year ago. For its chief executive, the underperformance had the added edge of coming months before the bank’s long-awaited investor day in January, increasing the pressure on his team to show a pathway to better returns.
Mr Solomon’s response was to appeal for patience on profitability, pledging that investments in projects such as Goldman’s online bank Marcus, its Apple credit card and a transaction banking platform would pan out — despite collectively costing the Wall Street bank a net $450m this year.
“We are willing to sacrifice some short-term returns to make these investments better position and strengthen the franchise and allow us to better deliver for our clients in the long run,” Mr Solomon said.
In the third quarter, Goldman’s earnings of $4.79 per share were worse than the $4.86 expected by analysts in a Bloomberg survey — even though estimates had been pared back by more than 15 per cent in the four weeks before results day. Net income fell 27 per cent.
Goldman lost $80m on its proprietary investment in Wework and another $267m on its public equity holdings, chiefly Uber, Tradeweb and Avantor. Investment banking fees fell 15 per cent year-on-year, in a quarter when rivals JPMorgan Chase and Citigroup posted rises of 8 per cent and 4 per cent, respectively.
Shares in Goldman Sachs dropped more than 3 per cent in morning trading, a fall that Sandler O’neill analyst Jeffrey Harte said partly reflected “pretty weak” advisory revenues and higher credit losses, as well as the news that Goldman had bought back fewer shares than expected in the quarter.
On an 11 am call with analysts, Goldman calmed fears about the stock repurchases by explaining that the programme had been halted because of negotiations with the US Department of Justice over its role in the 1MDB bribery scandal and that the repurchases had resumed.
Goldman shares closed up 0.3 per cent at $206.46, on a day when the KBW bank index gained 1.83 per cent.
