Goldman profit slammed by souring WeWork, Uber bets
Goldman Sachs Group Inc missed Wall Street estimates for quarterly profit on Tuesday as it took heavy losses from high-profile investments in WeWork and Uber Technologies and faced up to a weakening global economy.
The bank’s shares slipped nearly three per cent as revenue at three of its four major businesses fell, including a 15-per-cent drop for investment banking because of lower advisory and underwriting fees.
Net revenue at Goldman’s investing and lending unit slumped 40 per cent as it swallowed a loss of about US$80 million on its stake in WeWork owner The We Company and took hits from other investments.
Chief operating officer Stephen Scherr blamed the bank’s investments in ride-hailing company Uber, medical device maker Avantor Inc and trading platform Tradeweb for the US$267-million markdown in the quarter.
Scherr said those investments comprise 40 per cent of the bank’s US$2.3 billion invested in public companies, and they “were the largest contributors to the downdraft.”
Office-sharing startup WeWork’s valuation plummeted from a peak of US$47 billion in January to as low as US$10 billion to US$12 billion, Reuters reported last month, forcing it to pull its IPO. Uber’s shares are down 24 per cent since the firm debuted earlier this year.
The only bright spot for Goldman
was its institutional client services business, which accounts for more than a third of its overall revenue, but a six-per-cent growth at the unit was not enough to offset weakness in its other major businesses.
“Overall, GS posted mixed results this quarter. While the top line beat to us was a positive, it was driven by more trading which tends to be less persistent and investment banking results were weak,” analysts at Keefe, Bruyette & Woods said in a note to clients on Tuesday.
Bond trading revenue was up eight per cent, while equities rose five per cent.
Wall Street’s biggest banks are facing several challenges in growing their revenue, largely as concerns of slowing growth have deterred companies from tapping public markets for funds, but chief executive David Solomon sounded optimistic on a call with analysts.
“The IPO process is alive and well in the United States,” he said.
Under Solomon, Goldman has undertaken a major shift in strategy from its focus on trading to building a bigger consumer business.
Goldman, which recently launched a credit card with Apple, has also attempted to build out new businesses, but top executives at the bank have warned that those efforts will take time to bear fruit.
Solomon has pushed his top lieutenants to bring in at least US$5 billion of new revenue from those businesses by 2020, while conducting a full-scale review of the business that has led to new efficiency initiatives and a culling of its partnership pool of top executives.