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Goldman Sachs (GS) Q4 Earnings Beat Expectations Despite Challenging Year

AInvestTuesday, Jan 16, 2024 9:01 am ET
2min read

Goldman Sachs (GS) reported its fourth-quarter earnings, surpassing analysts' reduced expectations and demonstrating resilience amid a difficult year of slack deal-making and restructuring. The investment bank's stock rose by 1% in premarket trading following the announcement.

In the fourth quarter of 2023, revenue for the quarter reached $11.32 billion, beating the estimated $10.8 billion. Despite the challenging market conditions, the investment bank's asset and wealth management division experienced a robust revenue growth of 23% to $4.39 billion. However, net revenues were 4% lower than the third quarter of 2023. The strong performance was driven by higher net revenues in Asset & Wealth Management and Platform Solutions, partially offset by lower net revenues in Global Banking & Markets.

Earnings per Share increased 58% from the prior year period. GS reported EPS of $5.86 which handily outpaced analyst expectations. 

Global Banking & Markets net revenues reached $6.35 billion in the fourth quarter, representing a 3% decline compared to the same period in the previous year and a 21% decrease from the third quarter of 2023. Investment banking fees were $1.65 billion, experiencing a 12% decline from the fourth quarter of 2022. This decrease was mainly due to lower net revenues in Advisory, reflecting a decline in industry-wide completed mergers and acquisitions volumes. However, Debt underwriting and Equity underwriting revenues saw significant growth, driven by leveraged finance activity and secondary offerings, respectively.

FICC (Fixed Income, Currency, and Commodities) sales & trading revenue stood at $2.03 billion, demonstrating a 24% decline from the fourth quarter of 2022. This decrease was primarily driven by lower net revenues in interest rate products and currencies, as well as commodities and credit products. However, the Equities sales & trading revenue experienced a substantial increase of 26% year-on-year, reaching $2.61 billion, mainly due to higher net revenues in derivatives.

The Asset & Wealth Management division of Goldman Sachs witnessed a significant rise in net revenues, reaching $4.39 billion in the fourth quarter of 2023. This represented a 23% increase from the same quarter in 2022 and a 36% increase from the third quarter of 2023. The growth in net revenues was primarily driven by higher revenues in Equity investments, Debt investments, and Management and other fees. However, net revenues in Private banking and lending saw a decline.

Goldman Sachs's provision for credit losses in the fourth quarter of 2023 decreased to $577 million, down 41% from the same quarter in the previous year. These provisions were primarily related to the credit card portfolio and wholesale loans. The decrease in provisions was driven by a reduction in reserves related to the transfer of the General Motors card portfolio to held for sale.

Operating expenses for the fourth quarter of 2023 totaled $8.49 billion, representing a 5% increase from the fourth quarter of 2022. The increase was mainly attributed to the FDIC special assessment fee of $529 million. Despite the increase in expenses, the compensation expenses decreased by 4.3% year-on-year.

Goldman Sachs reported a return on average common shareholders' equity (ROE) of 7.5% for the full year 2023 and an annualized ROE of 7.1% for the fourth quarter of 2023. The return on average tangible common shareholders' equity (ROTE) was 8.1% for the full year and 7.6% for the fourth quarter.

Investors responded positively to the better-than-expected earnings, with Goldman Sachs' stock rising 1% in premarket trading. Over the past year, the stock has gained 1%, while the Dow Jones Industrial Average (DJIA) has seen a 9.6% increase during the same period.

In conclusion, Goldman Sachs' ability to outperform expectations in the face of adversity highlights its resilience and adaptability in a challenging market environment. The bank's focus on asset and wealth management, as well as its platform solutions business, has played a crucial role in driving revenue growth. Investors will be closely watching the performance of Goldman Sachs as it continues to navigate the evolving financial landscape.

$GS(GS)


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