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Bull Market Boosts Goldman Sachs' Q3 Profits by 45%

AInvestTuesday, Oct 15, 2024 9:36 am ET
3min read

Goldman Sachs reported its third-quarter earnings before the market opened on Tuesday.

The earnings data showed that, catalyzed by the bull market in US stocks, the group's pre-tax earnings soared by 45% in the third quarter, mainly due to the unexpected significant increase in revenue from Goldman Sachs' stock trading business and the accelerated recovery of investment banking business.

Goldman Sachs' net income for Q3 jumped to $2.99 billion, a substantial year-over-year increase of 45%, while diluted EPS was $8.40, a 54% increase year over year. Net revenue for Goldman Sachs in Q3 increased by 7% year over year to $12.7 billion, exceeding the market consensus of $11.8 billion. Driven by the strong earnings report, Goldman Sachs' stock price rose by more than 3.5% during the pre-market trading.

The company's equity traders have achieved the strongest quarterly performance in over three years, and Goldman Sachs' equity trading business is very likely to achieve the best annual performance in history. At the same time, Goldman Sachs' elite-level dealmakers have received commission fees that exceeded expectations from every key business line. Profits from the investment banking division of Goldman Sachs were somewhat mitigated due to the group's previous downturn in fixed income trading.

This year, investors have been significantly pushing up Goldman Sachs' stock price, mainly because the financial giant has abandoned the main setbacks in its consumer banking business and is preparing to benefit from the recovery trend of Wall Street investment banking business and the hot long-term bull market in US stocks. On Wall Street, financial giants such as Goldman Sachs have stated that they can withstand the impact of consumer retail business due to interest rate cuts while emphasizing the potential for increased IPO business and M&A deal-making, which is expected to raise the industry's fee base.

Goldman Sachs' stock price has risen the most among the top US investment banks this year, with an increase of up to 36%, and on Monday, it reached a historical high. The stock price has soared particularly in the second half of this year, mainly due to the rising expectations of a soft landing in the US economy, which has driven the continuous bull market in US stocks, thereby pushing the stock prices of Wall Street giants such as Goldman Sachs, Morgan Stanley, and Citigroup, which hold a significant share in the US stock investment field, to keep rising.

The financial giant's performance includes a loss of $415 million related to the termination of the credit card cooperation with General Motors Co. and the abandonment of other small retail business-related credit businesses. Barclays Bank stated on Monday that after Goldman Sachs' entry into the consumer loan market was announced as a failure, Barclays Bank will take over the credit card business related to General Motors.

The Wall Street financial giant also spent a lot of time last year trying to abandon a much larger credit card cooperation with Apple Inc. If Goldman Sachs exits the cooperation by selling loan asset portfolios at a discount, this business with about $17 billion in outstanding balances may suffer a more severe blow.

Goldman Sachs CEO David Solomon said last month that the revenue scale related to equity and debt investments in its asset management department has slowed down significantly, especially as the group reduces the scale of balance sheet investments. The revenue scale of this type is about $294 million, which has slowed down significantly compared to the recent quarters - including as high as $1.2 billion at the end of last year.

Despite the adjustment of business focus as the market sentiment becomes more bullish, the bank has not yet reached its target return on equity (ROE) of about 15%, and the group has only achieved this target once in the past 10 quarters. In the three months ending in September, the New York-based financial giant reported a return on equity of about 10.4% - this indicator tracks the specific profitability of bank shareholders' equity investments.

Detailed performance data shows that the overall business revenue of Goldman Sachs Group's entire equity trading department in the third quarter was as high as $3.5 billion, the best performance since the first quarter of 2021, a year-on-year increase of 18%, and a sequential increase of 10% - the second quarter had already achieved strong growth. Goldman Sachs Group attributed the significant increase in intermediary revenue from equity-related derivatives and cash products in the earnings report.

Goldman Sachs' fixed income trading business revenue in Q3 was $2.96 billion, a year-on-year decline of 12%, mainly due to the significant cooling of interest rate-related trading in the interest rate reduction cycle and a significant decline in commodity business revenue. In August, the group stated that Qin Xiao, co-head of the commodity business, resigned after only a few months in office, and at that time, the business growth had significantly slowed down.

In the third quarter, revenue from Goldman Sachs' investment banking was about $1.87 billion, exceeding the average expectation of $1.68 billion from analysts. The M&A advisory fee for the same period was about $875 million. Goldman Sachs was behind its competitors in the second quarter, but now it has surpassed its main competitor, JPMorgan Chase & Co.

Goldman Sachs' equity underwriting business revenue in the third quarter was about $385 million, a significant year-on-year increase of 25%, reflecting the continuous strong recovery process of the Wall Street investment banking business; Goldman Sachs' debt underwriting business revenue in the third quarter was about $605 million.

In the third quarter, Goldman Sachs' asset and wealth management-related business overall revenue was about $3.75 billion, a year-on-year increase of 12%. The group's management fees increased by about 9% in the third quarter. The group reported raising $16 billion in alternative businesses, most of which are related to credit strategies.

Meanwhile, the consumer business saw a revenue decline of about 32%, to $391 million, due to the related losses from the exit of business linked to General Motors, resulting in a pre-tax loss of about $559 million in Q3.

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