Profits nearly double at Goldman on broad revenue strength

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Goldman Sachs Group joined other big U.S. banks in cashing in on continuing pandemic-induced volatility, as the firm’s bond traders posted the biggest jump on Wall Street so far.

Third-quarter revenue from buying and selling stocks and bonds increased 29%, driven by a 49% surge in fixed-income trading and mirroring similar gains reported Tuesday by JPMorgan Chase and Citigroup. Revenue at each of Goldman’s four divisions rose from a year earlier, pushing earnings per share to a record that was almost twice as high as analysts predicted.

Net income almost doubled from a year earlier to $3.62 billion. Earnings per share were a record $9.68, far surpassing analysts’ estimates for $5.53.

Many investors were expecting Goldman to beat estimates, “but nowhere close to this order of magnitude, with strength coming from both high- and low-quality sources,” Steven Chubak, an analyst at Wolfe Research, wrote in a note. “Whatever your whisper number was, they crushed that, too.”

Trading gains since the start of the pandemic have helped offset weakness in consumer businesses at the nation’s biggest banks, where loan-loss provisions piled up in the first half of the year.

The bank’s lending portfolio stayed on the mend after a big writedown at the start of the year. The firm posted a surprise drop from a year earlier in its loan-loss provisions, echoing its bigger rivals in socking away a much smaller amount for credit losses. The stockpile amounted to just $278 million in the third quarter, down from $1.6 billion for the previous three months. The decline was mostly tied to corporate and consumer borrowers paying down loans, Goldman said.

Goldman’s consumer operation cracked $1 billion in trailing 12-month revenue for the first time since it started operations four years ago.

Goldman’s consumer deposits climbed at a slower pace than in the second quarter. Its money management arm posted a 3% drop in assets under management, mostly driven by a decline in liquidity products.

For Goldman, which is still a minnow in the world of retail banking, dealmaking and trading divisions have helped cushion its stock price from the kinds of steep declines some of its competitors have experienced.

Shares of the company were down 8.3% this year through Tuesday, compared with a 19% decline for the broader S&P 500 Financials Index. The stock climbed 2.2% at 8:27 a.m. in early New York trading.

Citigroup’s bond-trading revenue jumped 18% from a year earlier and its stock traders saw a 15% increase. At JPMorgan, fixed-income trading revenue increased 29% and equities advanced 32%. Bank of America missed out on the surge, posting a 3.6% climb that fell short of estimates.

Goldman’s fees from helping put together deals for companies dropped 27% to $507 million. Underwriting revenue of $1.43 billion topped analysts’ average estimate of $1.3 billion.

The firm’s equity investments delivered $1.4 billion of gains, more than double that of a year earlier, as it benefited from rallying markets, according to a statement from the New York-based firm Wednesday. That generated a bigger increase for the $3 billion public-equities portfolio than for the firm’s $16 billion in private holdings.

Goldman has been working to manage more client money to generate steady recurring fees, even though the strategy limits big wins that could come from wagering more of its own money. It’s closing in on raising about $14 billion for a new credit fund — the biggest pool of investment cash it has raised in more than a decade.

Net income almost doubled from a year earlier to $3.62 billion. Earnings per share were a record $9.68, far surpassing analysts’ estimates for $5.53.

The bank unveiled a leadership reorganization last month to create a structure more in line with how it reports earnings, a move that’s aimed at streamlining operations into easily digestible segments for investors and analysts.

Goldman has yet to fully resolve allegations tied to the role played by some of its investment bankers in a Malaysian investment-fund scandal. The bank has squared away the matter with the Asian nation, but has yet to wrap up a deal with the Department of Justice.

Bloomberg News
Earnings Investment banking Consumer banking Loan-loss provisions Goldman Sachs