Goldman profit falls short on weak M&A advisory; WeWork weighs

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By Anirban Sen and Elizabeth Dilts Marshall

(Reuters) – Goldman Sachs Group Inc (N:) missed Wall Street estimates for quarterly profit on Tuesday as global economic worries dampened appetite for deals, while it faced up to losses on its own high-profile investments in Uber Technologies (N:) and WeWork.

The bank’s shares slipped nearly 2% as revenue at three of its four major businesses fell, led by a 15% drop in investment banking revenue because of lower advisory and underwriting fees.

At the bank’s investing and lending division, which will have to wear the collapse in the value of WeWork owner The We Company as well as in other major market launches this year, net revenue fell 40% from last year to $662 million.

Analysts had estimated that Goldman would book a loss of over $250 million from its stake in WeWork in the third quarter. Goldman executives on Tuesday declined to comment on its stake in the office-sharing startup.

Before its botched public debut, WeWork’s valuation plummeted from a peak of $47 billion in January to as low as $10-12 billion, Reuters reported last month. Uber’s shares are down 24% since the company debuted earlier this year.

The only bright spot for Goldman was its institutional client services business, which accounts for nearly a third of its overall revenue, but a 6% growth at the unit was not enough to offset weakness in its other major businesses.

“Overall, GS posted mixed results this quarter. While the top line beat to us was a positive, it was driven by more trading which tends to be less persistent and investment banking results were weak,” analysts at Keefe, Bruyette & Woods said in a note to clients on Tuesday.

Bond trading revenue was up 8%, while equities rose 5%. JPMorgan (N:) also reported a surge in bond trading.

Wall Street’s biggest banks are facing several challenges in growing their revenue, largely due to the ongoing U.S.-China trade war and concerns about further interest rate cuts by the U.S. Federal Reserve.

Under Chief Executive Officer David Solomon, Goldman has undertaken a major shift in strategy from its focus on trading to building a bigger consumer business in a bid to shield its revenue from wild swings in financial markets.

Goldman, which recently launched a credit card with Apple (NASDAQ:), has also attempted to build out new businesses, but top executives at the bank have warned in previous quarters that those efforts will take time to bear fruit.

Solomon has pushed his top lieutenants to bring in at least $5 billion of new revenue from those businesses by 2020.

The bank’s net earnings applicable to common shareholders fell 27% to $1.79 billion in the quarter ended Sept. 30 from $2.45 billion a year ago. Earnings per share fell to $4.79 from $6.28 a year earlier.

Total net revenue fell 6% to $8.32 billion.

Analysts on average had expected earnings of $4.81 per share and revenue of $8.31 billion, according to the IBES estimate from Refinitiv.

Expectations from most brokerages tracking the investment bank were generally muted as macroeconomic conditions have been weighing on investor sentiment.

Goldman’s main rival Morgan Stanley (N:) is expected to report quarterly results on Thursday.

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