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Goldman’s Third Quarter Haunted by Uber, Other Investments

Goldman took a $267 million hit in the third quarter on public equity investments.

Goldman’s Third Quarter Haunted by Uber, Other Investments
The Goldman Sachs & Co. logo is displayed at the company’s booth on the floor of the New York Stock Exchange (NYSE) in New York, U.S. (Photographer: Scott Eells/Bloomberg)

(Bloomberg) -- Goldman Sachs Group Inc. was stung by slumping investments in some big names in the third quarter, hurting its most profitable business line.

The firm took a $267 million hit 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 writedown on its stake in WeWork after plans for an initial public offering 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 logged a much bigger decline in fees than analysts had predicted, down 15% 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 had to be pulled.

That performance was softened by an improved showing from traders amid signs of a revival in Goldman’s biggest unit. Trading revenue rose 6% from a year earlier to $3.29 billion, the New York-based bank said Tuesday in a statement. That beat the $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.

See also: JPMorgan jumps after profit, fixed income top estimates

Goldman shares slumped 3.1% to $199.36 at 9:36 a.m. in New York, the worst performer among the four biggest U.S. banks that posted results Tuesday. The shares were still up 19% for the year.

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 company works to provide more disclosure.

The losses from Uber and other investments in the third quarter come after those positions had delivered big gains in previous periods.

Wall Street banks grappled 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 also rolled out credit cards as part of a partnership with Apple Inc.

Investors and analysts still await a more-detailed strategic update from Solomon, who took 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.

Fees from helping companies sell shares dropped 20% from the second quarter to $385 million. Embattled office-sharing firm WeWork and Ari Emanuel’s Endeavor Group abandoned plans for an IPO amid tepid investor interest. The debt-capital markets business brought in $586 million, a decline from the previous quarter.

The firm did highlight an increase in its investment-banking backlog and will also benefit when Saudi Aramco brings its mammoth share sale to market. It’s advising on a potentially massive share sale for the oil giant, with the fee pool for advisers likely to total as much as $450 million.

The growth of Goldman’s Marcus business, which offers consumer loans and savings accounts, has forced the bank to pay attention to falling rates. The firm cut the amount of interest it pays depositors with online savings accounts at least three times since June. But Goldman’s lending to private wealth clients as well as through Marcus resulted in $891 million of net interest income, a record for a quarter.

Other Highlights

  • Equities revenue rose 5% while fixed-income climbed 8%
  • Earnings per share tumbled 24% to $4.79, missing the average estimate of $4.86
  • Revenue dropped 6% to $8.32 billion
  • Provision for credit losses jumped 67% to $291 million

--With assistance from Dan Reichl.

To contact the reporter on this story: Sridhar Natarajan in New York at snatarajan15@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Peter Eichenbaum, Steve Dickson

©2019 Bloomberg L.P.