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Oct 15, 2019

Goldman's third quarter haunted by Uber, other stock investments

U.S. bank earnings show mixed results

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Goldman Sachs Group Inc. was stung by soured investments in some big names in the third quarter, hurting its most profitable business line.

The firm took a US$267-million markdown in the period on public equity investments such as ride-hailing company Uber Technologies Inc., Avantor Inc. and Tradeweb Markets Inc. The bank probably took a markdown in its stake in We Co. after plans for a public listing collapsed. The losses fueled the worst performance in more than three years for the bank’s equity wagers in public and private companies.

Goldman’s investment bankers also posted a much bigger decline in fees than analysts had predicted, down 15 per cent from last year’s third quarter. They delivered their worst showing in David Solomon’s tenure as chief executive officer amid choppy markets and marquee deals that failed to come to market.

That performance was softened by an improved showing from traders amid signs of a revival in Goldman’s biggest unit. Trading revenue rose six per cent from a year earlier to US$3.29 billion, the New York-based bank said Tuesday in a statement. That beat the US$3.17-billion average estimate of analysts in a Bloomberg survey. Earlier in the day, JPMorgan Chase & Co. reported results that beat Wall Street estimates, driven by stronger than expected revenue from its fixed-income traders.

Goldman shares slid 1.9 per cent to US$201.75 in early trading at 7:33 a.m. in New York. The shares had gained 23 per cent this year through Monday.

Gains from investments with its own money are sometimes Goldman Sachs’s biggest profit driver, and executives have argued they showcase a core skill that should be valued by shareholders. But the slump in prized holdings will add to a perception that the investments are subject to unpredictable swings even as the firm works to provide more disclosure.

Wall Street banks were dealing with increased volatility in the third quarter, while executives grew cautious about its benefits to their trading desks. Goldman had snatched market share from weaker rivals in a boost for its operations earlier in the year.

Goldman Sachs is in the middle of a significant strategic shift as it retools businesses. The push includes a nascent consumer-banking effort, cash-management tools and new initiatives to win more business from existing clients. The firm has also rolled out credit cards as part of a much-touted partnership with Apple Inc.

Investors and analysts still await a more-detailed strategic update from Solomon, who took over the top job more than a year ago. He has vowed to tighten up the partnership ranks and installed new leaders across divisions, even as he works for a resolution to the 1MDB banking scandal.

Goldman also has been forced to pay attention to falling rates with the growth of its Marcus business, which offers consumer loans and savings accounts. The firm cut the amount of interest it pays depositors with online savings accounts at least three times since June.

OTHER HIGHLIGHTS

-Equities revenue rose five perr cent while fixed-income climbed eight per cent

-Earnings per share tumbled 24 per cent to US$4.79, missing the average estimate of US$4.86

-Provision for credit losses jumped 67 per cent to US$291 million