By Nupur Anand, Niket Nishant and Saeed Azhar
NEW YORK (Reuters) -Goldman Sachs Group Inc's profit fell 19% as dealmaking and bond trading slumped in the first quarter and it lost money on the sale of some assets in its consumer business.
Shares declined after Chief Executive David Solomon outlined further plans to scale down Marcus, the consumer business he once championed, and Goldman's results lagged major Wall Street peers for a second quarter in a row.
Investment banking activity remains extremely muted, and while there are some green shoots emerging, clients remain cautious, Solomon said in a post-earnings call.
"Recent events in the banking sector are lowering growth expectations, and there is a higher risk of credit contractions given the environment is limiting banks' appetite to extend credit," Solomon told analysts.
Investor confidence in the banking sector was shaken in March after Silicon Valley Bank and Signature Bank (OTC:SBNY) failed, two of the largest collapses in U.S. banking history. The Federal Reserve's efforts to tame inflation through aggressive interest rate increases have also raised concerns about an economic downturn.
Goldman booked a $470 million loss on the sale of some loans from Marcus, dragging down first quarter results. The bank also released $440 million from its reserves to soften the hit from its consumer loan portfolio.
Goldman sold $1 billion worth of loans from its Marcus portfolio and plans to further reduce the portfolio, Chief Financial Officer Denis Coleman told analysts.
"Goldman got into the consumer business at the wrong time shortly before the downturn, and they are re-imagining parts of the business by getting out of lending and focusing on deposits," Stephen Biggar, an analyst at Argus Research, told Reuters. "It just puts Goldman in kind of an awkward space in the consumer market."
The bank's net profit applicable to common shareholders fell to $3.09 billion in the quarter, compared with $3.83 billion a year earlier, while earnings per share slid to $8.79 from $10.76 last year, it said on Tuesday.
Excluding onetime costs, the Wall Street heavyweight earned $9.87 per share, exceeding the analysts' average estimate of $8.10 per share, according to Refinitiv data.
Its stock fell 1.7% to $333.91 in afternoon trading.
Global mergers and acquisitions activity shrank to the lowest level in more than a decade in the first quarter, according to data from Dealogic. That hurt Goldman's investment banking fees, which dropped 26% to $1.58 billion.
Revenue from fixed income, currency and commodities (FICC) trading, usually a bright spot, plunged 17% to $3.93 billion, while equity trading revenue sank 7% to $3.02 billion.
"The revenue shortfall versus our expectations came mainly on FICC trading and equity investments, which are of course both relatively volatile," Chris Kotowski, a banking analyst at Oppenheimer & Co, wrote in a note.
Revenue in Goldman's asset and wealth management unit rose 24% to $3.2 billion. Still, that reflected a 10% decline from the end of the fourth quarter last year.
Net revenue fell 5% to $12.22 billion in the first quarter.
Goldman is exploring strategic options for its consumer platform business, which has lost about $3 billion in three years, executives told investors in February. It's also considering a sale for GreenSky, a fintech business that it bought for more than $2 billion in 2021.
But deposits held in the Marcus business remain core to Goldman and are not under review, a source familiar with the matter had told Reuters earlier this year.
Goldman reshuffled its main divisions in 2022, shifting the focus back to its traditional mainstays of trading and investment banking, beefing up its asset management arm and stepping back from its consumer aspirations.
Rival Morgan Stanley (NYSE:MS), which has diversified its business by concentrating on wealth management, reports results on Wednesday.
Goldman's lackluster trading results contrast with those of Bank of America Corp (NYSE:BAC), which also reported earnings on Tuesday. BofA's profit beat analysts' estimates after its bond traders had their best quarter in a decade.
"Goldman was uncharacteristically weak in trading compared to other banks and it is unlikely to continue at the first quarter pace, so we can expect some more softening in performance," Biggar added.