DAVID Solomon’s reign at Goldman Sachs Group Inc might not have hit rock bottom yet.

       After a big writedown in the value of its consumer business this quarter, the under-pressure chief executive officer has more goodwill he could still lose.

       Solomon has spent the past 12 months battling shareholder disappointment and a mutinous mood among Goldman Sachs’s 420 powerful partners.

       The root of the disquiet is his ill-starred strategy of trying to turn Goldman Sachs into a bank that produces more stable and predictable earnings to get higher valuation.

       Hardly anyone is happy with the result and they still haven’t seen the final bill.

       Solomon’s U-turn on his quest to build a consumer business alongside the wider downturn in real estate markets resulted in the second-worst quarterly returns of his tenure.

       Annualised return on tangible equity in the second quarter of just 4.4% was only beaten into the bad books by the 1% return recorded in the same period of 2020 when the global spread of Covid-19 was wreaking havoc.

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       Throughout his time in the top job since late 2018, Goldman Sachs’s quarterly returns have swung between higher highs and lower lows than rivals such as Morgan Stanley and JPMorgan Chase & Co.

       This isn’t how it was meant to be. The valuation of its shares on a price-to-book basis has fallen further behind those peers in recent months. Annualised return on tangible equity each quarter. The second quarter was rough for Goldman Sachs.

       It suffered more than US$1bil (RM4.5bil) in losses on debt and equity investments in commercial property, and a slump in its core investment banking and trading revenue.

       It gained about US$100mil (RM455mil) on the sale of most of the remaining loans from its Marcus consumer portfolio, but lost US$677mil (RM3.1bil) on the GreenSky home-improvement lending business, which it only bought last year but is already looking to sell.

       The GreenSky losses included a goodwill writedown of US$504mil (RM2.3bil), which is half of the US$1.05bil (RM4.78bil) of goodwill Goldman Sachs booked on the purchase.

       Much of the rest could be lost too if Goldman Sachs sells GreenSky.

       It paid US$1.75bil (RM7.96bil) in stock for the company when the deal closed in early 2022, according to last year’s annual report. Its value today could be substantially less than US$1bil (RM4.5bil), according to reports.

       In Goldman Sachs’s markets division, the picture wasn’t much prettier. Its fixed-income trading business reported a 26% drop in revenue in the second quarter versus the same period last year when commodities activity was unusually strong.

       However, its equities trading arm reported flat revenue and beat expectations after winning more business lending to hedge funds in prime brokerage.

       Its investment bank meanwhile reported a near 50% drop in fees for advising on mergers and acquisitions as well as a slight drop in debt underwriting.

       Equity underwriting rebounded very strongly however, just as it did at JPMorgan and Bank of America Corp this quarter.

       Overall, though, it was the bank’s weakest quarter for investment banking fees in almost a decade, according to Bloomberg data.

       Goldman Sachs’s asset and wealth management unit also missed revenue expectations and swung to an overall loss, mostly due to net losses on equity real estate investments of US$403mil (RM1.83bil).

       This is the arm of the bank meant to become the main source of Solomon’s sought-after stability in profits and revenue.

       It remains volatile for now, but should improve once the bank has finished selling down many of the historic investments made with the bank’s money.

       Goldman Sachs will still invest money from its balance sheet in the funds it runs for clients, so there will likely always be some value-related ups and downs in these numbers.

       The good news is that total revenue is running at higher levels than in 2019, which is mainly due to the extra juice higher interest rates are giving the trading businesses.

       Goldman Sachs’s fixed income numbers might be down sharply versus last year, but trading remains more lucrative than it was before the Covid-19 pandemic.

       The problem Solomon faces is in balancing the demands of the Goldman Sachs partners, who own only a small fraction of its stock, and all the other shareholders who ultimately pay his wages.

       His efforts to give public investors the durable and less volatile bank they wanted led him into a huge bet on consumer finance.

       That’s already cost billions in credit provisions and goodwill charges and could still cost a few hundred million more.

       Neither partners nor public shareholders are happy – and that’s before seeing the final costs of undoing Solomon’s strategic missteps. — Bloomberg

       Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. The views expressed here are the writer’s own.