Synopsis: Goldman Sachs outperformed profit expectations in the third quarter of 2024, driven by a strong rebound in bond sales, stock offerings, and mergers. The bank's investment banking division showed a 20% surge in fees, while corporate clients' confidence in the economy led to increased debt and equity offerings.
Goldman Sachs reported a stronger-than-expected third-quarter profit, buoyed by a resurgence in its investment banking activities.
The bank's profit was primarily fuelled by a rebound in bond sales, stock offerings, and merger and acquisition deals.
As a result, Goldman’s shares rose by more than 3% in premarket trading.
CEO David Solomon emphasized the bank's resilience, stating that their performance "demonstrates the strength of our world-class franchise in an improving operating environment."
The rebound in investment banking mirrored the trends seen in other major financial institutions, such as JPMorgan Chase, which also benefited from renewed corporate client confidence in the economy.
U.S. companies have increased debt and equity offerings amid signs of economic resilience, boosted by robust job growth, wage increases, and an interest-rate cut by the Federal Reserve.
In Q3, Goldman Sachs saw its investment banking fees rise by 20% to $1.87 billion.
The rise was driven by a jump in leveraged finance—loans issued to riskier ventures such as buyouts—and significant growth in debt underwriting.
Equity underwriting also delivered higher revenue due to increased secondary share sales.
A notable highlight of the quarter was Goldman advising Kellanova, the maker of Cheez-It, on its $36 billion acquisition by Mars, marking the largest deal in the U.S. so far this year.
Goldman’s improved Q3 results also benefited from a favourable comparison to the previous year when it faced significant writedowns related to its consumer business and real estate investments.
Total profit surged by 45% to $2.99 billion, or $8.40 per share, surpassing the expected $6.89, according to estimates compiled by LSEG.
Despite the overall positive performance, Goldman booked $397 million in provisions for credit losses, compared to just $7 million in the same quarter last year.
This increase was driven by higher charge-offs in the bank's credit card portfolio, stemming from its troubled consumer banking venture.
Goldman has since shifted its focus back to its core investment banking and trading activities and is exiting its credit card partnership with General Motors, which has now inked a deal with Barclays.
Goldman also took a $415 million one-time hit related to the transfer of its GM credit card business to Barclays.
Additionally, the bank's partnership with Apple is facing an uncertain future, with JPMorgan reportedly in talks to replace Goldman as Apple’s credit card partner.
Meanwhile, revenue from fixed income, currency, and commodities trading declined by 12%, while equities trading experienced an 18% rise.
Asset and wealth management, which serves institutions and high-net-worth individuals, posted a 16% increase in revenue compared to the previous year.
The bank's total assets under management reached a record $3.1 trillion during the quarter.
Goldman’s workforce also grew, with a headcount of 46,400 employees by the end of the quarter, compared to 44,300 at the end of June and 45,900 a year earlier.
In conclusion, Goldman Sachs' third-quarter performance underscored its ability to capitalize on an investment banking rebound and improve profitability despite lingering challenges from its consumer banking venture.
With a significant boost in investment banking fees and robust growth in asset management, the bank continues to assert its dominance in the financial sector.
However, headwinds remain in its credit card partnerships, requiring further strategic adjustments to maintain future growth.
Disclaimer: This article is for informational purposes only and should not be considered investment advice. Readers are encouraged to consult with a financial advisor before making any investment decisions.
