David Solomon. Picture: REUTERS/LUCY NICHOLSON
David Solomon. Picture: REUTERS/LUCY NICHOLSON

New York — Goldman Sachs Group was stung by slumping investments in about big names in the third quarter, hurting its most profitable business line.

The firm took a $267m hit in the period on public equity investments such as ride-hailing company Uber Technologies, Avantor and TradeWeb Markets. The bank probably took a writedown on its stake in WeWork after plans for an initial public offering collapsed. The losses fuelled 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 2018’s third quarter. They delivered their worst showing in David Solomon’s tenure as CEO 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 $3.29bn, the New York-based bank said on Tuesday. That beat the $3.17bn average estimate of analysts in a Bloomberg survey.

Goldman shares fall 3.1% to $199.36 at 9.36am in New York, the worst performer among the four biggest US banks that posted results on Tuesday. The shares were still up 19% for 2019.

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.

Volatile trading

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.

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 $385m. 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 $586m, 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 is  advising on a potentially huge share sale for the oil giant, with the fee pool for advisers likely to total as much as $450m.

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 $891m of net interest income, a record for a quarter.

Bloomberg