Goldman Sachs has indicated that it is on track for a record full-year profit, capping a week of bank profits in which Wall Street companies have raked in billions of dollars thanks to a trading boom.
The US lender on Friday reported third-quarter earnings per share of $ 14.93 for total net income of $ 5.4 billion. That was up from $ 3.4 billion a year earlier and topped expectations by $ 3.7 billion, according to data compiled by Bloomberg.
Group revenue rose to $ 13.6 billion, up from $ 10.8 billion a year earlier and ahead of analyst consensus at $ 11.6 billion. The investment bank drove the growth, reaching $ 3.7 billion.
Goldman ended a bumper profit season for investment banking income on Wall Street. Investment banks are making record amounts of fees thanks to a rush of deals that spanned company mergers, private equity purchases and IPOs.
Rival JPMorgan Chase’s investment banking income rose 52% to $ 3.3 billion, while Morgan Stanley’s investment banking fees rose 67% to $ 2.9 billion.
Bank of America’s investment banking income rose 23% to $ 2.2 billion. At Citigroup, they rose 39% to $ 1.9 billion.
Globally, Goldman posted revenue of $ 46.7 billion and net income of $ 17.7 billion for the first nine months of 2021, more than any annual period in the history of the bank.
Goldman stock, which has risen more than 80% in the past year, gained 3.8% in New York on Friday.
Oppenheimer analysts described the quarter for Goldman as “literally off the charts,” with earnings per share for the quarter above even the most optimistic forecasts.
The looming question for Goldman is how sustainable the results of a blockbuster like this are for the bank. Chris Kotowski of Oppenheimer said that “no one expects the environment to last.”
“That said, with the Fed printing $ 120 billion in new money each month, every CEO in the world has plenty of Monopoly money to play with. Mergers and Acquisitions, Capital Spending, and Capital Raising will likely remain strong, ”Kotowski said.
David Solomon, chief executive of Goldman, argued in the bank’s earnings announcement that its investment banking business has become structurally more important.
If trading activity were to slow down, “we’re going to find that these companies are fundamentally bigger than they were five years ago, due to the growth and market capitalization of the world and the growth and of the world’s economic activity, ”says Solomon.
The investment banking momentum for the quarter was particularly well suited to the Goldman franchise. Some 44.6% of the fees were for M&A advisory work, for which Goldman has earned more than any other bank so far in 2021, according to data from Refinitiv.
Consulting fees were more than three times higher than in the same quarter last year, at $ 1.6 billion. Equity and debt subscription fees increased 100% and 27%, respectively.
Goldman’s markets division trading revenue increased 23% year-on-year to $ 5.6 billion.
In early 2020, Goldman outlined its plans on its first Investor Day to focus on consumer and transaction banking so that it was less reliant on its trading and investment banking services.
Revenue at the consumer and wealth management unit, which includes its online banking Marcus and Apple credit card, rose 35% to $ 2 billion, ahead of analyst forecasts at $ 1.8 billion.
The annualized return on equity for the quarter was 22.5%, ahead of the mid-term target of 14% set by Goldman in 2020.
Solomon, however, has been more cautious about the bank’s outlook, pointing to the trajectory of inflation, the Delta variant of Covid-19, the debate around US economic policy, and the “complicated” US-China relationship. like risks.
“Taken together,” Solomon said, “these elements have the potential to be a barrier to growth.”