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Goldman Sachs hits all-time highs as capital markets performance improves

AInvestTuesday, Oct 15, 2024 8:18 am ET
2min read

Goldman Sachs (GS) reported strong Q3 2024 earnings, with EPS of $8.40, well above analyst expectations of $6.89, and net revenue of $12.7 billion, surpassing estimates of $11.77 billion. Net income rose to $3 billion, significantly higher than the anticipated $2.38 billion, reflecting a solid recovery in the bank’s core business lines. The results were driven by strong performances in Global Banking & Markets, as well as Asset & Wealth Management.

Shares of GS are marching higher following the news. The stock has rallied to $537 in the pre-market, a fresh all-time high for the stock, which is up 44% for the year.

In Global Banking & Markets, net revenues reached $8.55 billion, up 7% year-over-year and 5% sequentially, benefiting from a 20% year-over-year increase in investment banking fees. Debt underwriting surged 46%, while equity underwriting climbed 25%, both outperforming expectations. Advisory revenues also rose by 5.3% year-over-year, with GS maintaining its leading position in worldwide M&A and equity offerings. FICC (Fixed Income, Currency, and Commodities) trading revenues were in line with expectations at $2.96 billion, though down 12% from the prior year due to weaker performance in interest rate products and commodities.

Asset & Wealth Management saw quarterly revenues of $3.75 billion, driven by record fees in management and other services. Assets under supervision increased by $169 billion during the quarter, bringing total assets under supervision to a record $3.10 trillion. This segment benefitted from strong client inflows, netting $66 billion, well above the estimated $30.8 billion, further solidifying Goldman’s position in the wealth management space.

On the credit front, GS reported a provision for credit losses of $397 million, a sharp increase from $7 million in the same quarter last year, but relatively in line with the $411.9 million expected. This increase was primarily driven by net charge-offs in the credit card portfolio, although the wholesale portfolio saw some recoveries from previously impaired loans. The credit situation remains manageable but has shifted from the significantly lower levels seen in prior periods.

Operating expenses decreased by 8% year-over-year to $8.32 billion, below the estimated $8.11 billion. This decline was attributed to lower expenses related to consolidated real estate investments and the absence of last year’s write-downs related to GreenSky, although compensation expenses remained elevated at $4.12 billion. Despite the reduction in operating costs, Goldman maintained a solid efficiency ratio of 65.5%, better than the estimated 68.5%.

Goldman’s capital markets performance highlights the gradual recovery in deal activity, with the surge in equity and debt underwriting reflecting increased corporate confidence and capital-raising efforts. This is a positive signal for the broader investment banking industry, which has been recovering from a muted period due to high interest rates. The robust performance in capital markets positions GS well to continue capitalizing on these trends heading into 2025.

The bank’s return on average common shareholders’ equity (ROE) stood at 10.4%, beating the expected 8.73%, and return on tangible equity (ROTCE) was 11.1%, above the estimated 9.44%. Book value per share increased by 1.8% to $332.96, underscoring the bank’s ability to generate shareholder value. The firm’s CET1 ratio, a key measure of capital strength, came in at 14.6%, slightly below expectations but still a solid figure.

Overall, Goldman Sachs delivered a strong quarter, with notable outperformance in its core revenue segments and continued discipline in cost management. The results signal a broader recovery in the capital markets and strong demand for wealth management services, while the bank’s credit provisioning remains cautious amid evolving macroeconomic conditions. Shares rose 1.7% in premarket trading, reflecting investor optimism following the earnings beat.

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