Goldman Sachs Reports 45% Increase in Q3 Profits

Impressive Q3 Results

Goldman Sachs has reported a significant 45% increase in Q3 profits, reaching $3bn. This surge is largely attributed to its equity trading business. Despite taking a hit from its withdrawal from retail banking, the investment bank still managed to exceed revenue expectations. The net income of $2.99bn surpassed last year's Q3 figure of $2.1bn and analysts' predictions of around $2.5bn.

Key Q3 Figures

Key figures for Q3 include a net revenue of $12.70 billion, beating estimates of $11.77 billion, and FICC Sales & Trading Revenue of $2.96 billion, matching estimates. Furthermore, Global Banking & Markets net revenues were $8.55 billion, a 6.8% increase year on year, and Investment banking revenue was $1.86 billion, a 20% increase year on year. Both figures exceeded estimates.

Equity Trading Revenues

Goldman's stock trading business had its best quarter since the start of 2021, with equity trading revenues reaching $3.5bn, an 18% increase. This defied expectations of a flat quarter. The firm attributes this to significantly higher intermediation revenue in derivative and cash products.

Fixed Income Trading Revenues

On the flip side, the company's largest profit center, fixed income trading (FICC), saw revenues fall 12% to $2.96bn, in line with estimates. Goldman cited lower revenue in rates and commodities as the reason for this decline. The bank also noted a significant slowdown in revenue tied to equity and debt investments in its money-management unit, particularly as the bank reduces investing from its balance sheet.

Additional Results

Additional results include a provision for credit losses of $397 million, below estimates of $411.9 million, and total deposits of $445 billion, a 2.8% increase quarter on quarter. However, total operating expenses were $8.32 billion, higher than the estimate of $8.11 billion, and compensation expenses were $4.12 billion, also higher than the estimate of $3.89 billion.

Return on Equity

Despite the narrowed focus in its business, following its withdrawal from consumer banking, the bank is still shy of its mid-teens return-on-equity target. In the three months through September, the New York-based firm posted a 10.4% ROE — a measure that tracks how profitably the bank invests shareholder equity.

Challenges and Opportunities

Goldman's results would have been even stronger were it not for a charge due to losses taken a year ago tied to its pullback from consumer banking and writedowns on real estate investments. The bank’s results included a $415 million hit tied to severing the firm’s credit-card partnership with General Motors and jettisoning other small retail ventures. Barclays Plc announced on Monday that it’s taking over the GM business after Goldman's unsuccessful venture into consumer lending.

Dealmaking Activity and Investment Banking

Goldman also benefited from a revival of dealmaking activity, which Wall Street hopes signals the start of a sustained recovery. Investment banking fees rose 20% at $1.865bn, ahead of the $1.68bn estimates. Merger-advisory fees were $875 million. Goldman jumped out in front of JPMorgan on that metric after falling behind its rival in the second quarter. Its equity-underwriting business posted revenue of $385 million and debt-underwriting revenue was $605 million.

Asset and Wealth Management Division

Goldman’s asset and wealth management division, which is central to CEO David Solomon’s efforts to make the bank less reliant on investment banking and trading, reported a 16% increase in revenues to $3.754 bn. Management fees climbed 9%. The bank reported $16 billion of fundraising in the alternatives business, mostly tied to credit-related strategies.

Consumer-Platforms Business

The consumer-platforms business, dubbed the bad bank within Goldman, recorded a 32% drop in revenue to $391 million, driven by the GM card exit and resulting in a pretax loss of $559 million.

Net Interest Income

The bank's net interest income rose an impressive 70% year on year to $2.62 billion, smashing estimates of $1.85 billion; the bank reported that in Q3, its average interest-earning assets were $1.59 trillion.

Investor Response

Investors have responded positively to Goldman's performance this year, as the bank abandoned major parts of its consumer-banking push and positioned itself to benefit from a rebound in investment banking. Goldman's shares have posted the biggest gain among the top US banks this year, advancing 36%, and they reached an all-time high on Monday. The stock jumped 3.3% at 8:03 a.m. in early New York trading.

Bottom Line

Goldman Sachs' impressive Q3 results demonstrate the bank's ability to adapt and thrive in a changing financial landscape. Despite challenges, such as its withdrawal from consumer banking, the bank has managed to exceed expectations and deliver strong results. What are your thoughts on Goldman Sachs' Q3 performance? Feel free to share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.