Unlike JPM, BofA, Citi and Wells, Goldman Sachs is lucky that it remains a pure play trading operation (the joke that is Marcus notwithstanding), and perhaps that's why Goldman provided a ray of hope for the battered banking sector after BofA's dismal earnings report and yesterday's lackluster results from JPM and Citi.
Unlike BofA's disappointing sales and trading results, Goldman reported revenues and EPS which smashed expectations, with Q3 revenues of $10.78BN, up 30% Y/Y, and smashing exp. $9.40, resulting in Q3 EPS of $9.68, double the $4.79 reported a year ago, and also trouncing the estimate of $5.52.
Some more highlights on how Goldman generated more than $10BN in revenue:
- Investment Banking generated quarterly net revenues of $1.97 billion, including the second highest quarterly net revenues in Equity underwriting.
- Global Markets generated quarterly net revenues of $4.55 billion, reflecting continued strength in Fixed Income, Currency and Commodities (FICC) and Equities.
- Asset Management generated quarterly net revenues of $2.77 billion, reflecting strong performance in Equity investments. Assets under management $2.04 trillion, +16% y/y
- Consumer & Wealth Management generated quarterly net revenues of $1.49 billion, reflecting record net revenues in Consumer banking and continued strength in Wealth management.
Naturally, the bulk of this upside was driven by yet another solid quarter in global markets, driven by a Y/Y surge (but Q/Q drop) in Q3 FICC sales & trading revenue, which rose 65% Y/Y to $2.50 billion, beating the estimate $2.27 billion. Meanwhile, equities sales & trading revenue was slightly weaker than expected at $2.05 billion, below the estimate of $2.14 billion. As a result, total 3Q trading rev. $4.55 billion, beating the estimate of $4.41 billion.
A breakdown of FICC vs Equity is shown below:
Goldman also reported strong investment banking revenue of $1.97 billion, beating the estimate of $1.75 billion, despite "financial advisory net revenues that were significantly lower reflecting a decrease in industrywide mergers and acquisitions." Offsetting this was significantly higher underwriting net revenues "due to higher net revenues in equity underwriting, reflecting a significant increase in industry-wide IPOs and higher net revenues in Debt underwriting, driven by asset-backed and investment grade activity."
Of course, while Goldman remains mostly a hedge fund, the bank has been pretending it is also a traditional bank, and as such, the Net Interest Income it generated in Q3 was up 7.5% from last year as it continued to grow out Marcus, generating $1.08 billion in Net Interest Income driven by "an increase in interest earning assets." That said, total loans were a paltry $112BN, with Goldman only setting aside some $4BN in loan loss allowance, unchanged from last quarter.
There was some good news for Goldman employees too, as compensation and benefits jumped by 14% Y/Y (but dropped 30% from Q2), which reflected significantly higher net revenues. This was offset by "lower travel and entertainment expenses, professional fees, occupancy-related expenses, and net provisions for litigation and regulatory proceedings" Goldman also incurred "higher technology expenses and brokerage, clearing, exchange and distribution fees."
As a result of the strong trading results, unlike the other banks Goldman's stock was actually higher on earnings:
Full results below: