Profits leap at Goldman Sachs as banks see steady economy
Trading activity came in stronger than expected in September for Goldman Sachs, which is headquartered in New York
Goldman Sachs on Oct 15 reported a monster jump in its third-quarter earnings, reaping US$3 billion (S$3.9 billion) in profits – far higher than what Wall Street analysts had expected.
How did the US investment bank do it?
The steadying economic environment helped – but so did a financial manoeuvre employed by Goldman chief executive David Solomon a few weeks ago.
In early September, Mr Solomon publicly sounded the alarm, saying many aspects of the bank’s business were stumbling in the third quarter. He warned that the bank’s upcoming earnings might disappoint.
They did not – not at Goldman nor the two other major banks that reported results on Oct 15.
A billion-dollar beat
Goldman pulled in nearly US$13 billion in revenue during the third quarter, over US$1 billion more than projections. Its stock was roughly flat.
The bank’s US$3 billion in quarterly profit was roughly equal to what it pulled in during the previous quarter, despite Mr Solomon’s warning in September that profits might not hold up as well as they had in the first half of 2024.
A bank executive, briefing reporters on the condition of anonymity, said that trading activity – a core part of any investment bank – came in stronger than expected in September, the same period that the Federal Reserve announced a large cut in interest rates.
It has been an insipid year for mergers and acquisitions, which Goldman and other investment banks rely on to collect fees for helping to arrange the tie-ups. That said, the Goldman executive reflected a degree of optimism, saying “the world is trending to above average”, economically speaking.
Those mixed feelings were shared by its rival JPMorgan Chase last week, when it reported bumper financial results but flagged a litany of potential problem spots ahead.
Brief interlude about the election
Goldman executives used to be so omnipresent in government administrations, of both parties, that onlookers coined the phrase “Government Sachs”. In 2024, the bank has taken pains to avoid weighing in on the presidential race.
Alarm bells rang in Goldman’s executive suites in New York after US Vice-President Kamala Harris said the bank’s research indicated that her economic proposals would help the economy while former US president Donald Trump’s plans would hurt it.
That was not entirely true: The bank’s research said Ms Harris’ plans would help more than Trump’s, but that his were not a net negative.
Mr Tony Fratto, a Goldman spokesman, said last week that “the analysis showed relatively small impacts – a few tenths of a per cent faster growth from Harris’ proposals”, while noting uncertainty around what either candidate would carry out in the end.
In credit cards, a return to normal programming
The Goldman Sachs equivalent of a rerun is the bank’s slow extrication from its consumer bank ambitions.
This week, the bank finally sold its GM-branded credit cards to Barclays, and it has said it intends to exit its Apple-branded cards, too, though it declined to offer an update Oct 14.
The bank set aside US$397 million for credit losses last quarter, a sharp increase from the previous quarter and the same period in 2023, an indication of continued pain in the business.
And now, a word from Bank of America and Citi
Bank of America separately reported its latest earnings on Oct 15, and in keeping with the theme, it beat analyst forecasts.
Although its profit in the third quarter fell more than 10 per cent from the same period in 2023, the decline was not as steep as expected, bolstered by a jump in trading revenue and investment banking fees.
“We feel good across the board,” Bank of America CEO Brian Moynihan told analysts. The bank’s stock rose 2 per cent.
Citi’s earnings, also released on Oct 15, featured a smaller-than-expected drop in profit but a hefty provision to cover future credit card losses.
“We are already a very different Citi,” CEO Jane Fraser said. Citi’s stock fell more than 3 per cent. NYTIMES
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