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CEO David Solomon, Goldman Sachs, during Bloomberg Television at the Goldman Sachs Financial Services Conference in New York, December 6, 2022.
Michael Nagel | bloomberg | Getty Images
Goldman Sachs Chief Executive David Solomon said Monday that his bank will unveil discounts on commercial real estate holdings as the industry struggles with rising interest rates.
Solomon told CNBC’s Sarah Eisen that the New York-based company will pay back loans and equity investments linked to commercial real estate in the second quarter. Financial firms recognize loan defaults and lower valuations as write-downs that affect quarterly results.
“There is no doubt that the real estate market, especially commercial real estate, has been under pressure,” he said in an interview on CNBC’s “Squawk on the Street.” “You’ll notice some declines in lending that should flow through our wholesale provisions” this quarter.
After years of low interest rates and high valuations for office buildings, the industry is in the agonizing throes of adjusting to high borrowing costs and low occupancy rates due to the shift to remote work. Some homeowners have walked away from holdings rather than refinance their loans. Defaults are just starting to show up in banks’ results. Goldman posted nearly $400 million in first-quarter losses on mortgages, according to Solomon.
On top of Boldman’s lending activities, Solomon said, it has also acquired direct stakes in real estate as it has ramped up its alternative investments in the past decade.
“We believe that we and others are reducing these investments given the environment this quarter and in the coming quarters,” Solomon said.
While downgrades “are certainly a headwind” for the bank, they are “manageable” in the context of Goldman’s overall business, he said.
However, it may be less manageable for smaller banks. Solomon said about two-thirds of the industry’s loans come from regional and medium-sized enterprises.
“This is just something we have to work through,” he said. “There will likely be some bumps and some pain along the way for a number of participants.”
In a wide-ranging interview, Solomon said he was “surprised” by the resilience of the US economy, and was seeing “green shoots” emerging after a period of weak capital markets activity.
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