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Goldman Sachs, America's largest investment bank reported better than expected third quarter earnings before the market Friday. Equities trading saw a 51% jump in revenue to $3.10 billion and Investment banking bbrought in near record dollars.

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Goldman Sachs Group Inc NYSE: GS Reported Before Open Friday

$14.93 Beat $10.14 EPS and $13.61 Billion Beat $11.70 Billion Forecast in Revenue

Earnings Preview

  • Q3 2021 earnings release: before the opening bell; conference call: 10:30 a.m.

Goldman Sachs earnings rose to $5.38 billion, or $14.93 a share, for the three months ending in September versus a projected EPS of $10.14 on projected revenue of $11.7 billion which came in much higher a $13.61 billion. Advising on mergers and acquisitions brought in a record $1.65 billion in revenue, up 225 percent from a year earlier and equities traders posted a 51 percent jump in revenue to $3.10 billion.

At Goldman SPACs mania helped push investing banking net revenues including record equity underwriting this year. 

Particular attention is likely to be on the bank’s equities operation after the blow up of Archegos Capital, and in particular how much the liquidations cost the bank. CEO David Solomon has embarked on a restructuring with a greater focus on wealth management.

 Big Banks Kick Off Third Quarter 2021 Earnings Season

The bank rally has been fueled by expectations for the economy reopening and infrastructure spending.  The new surge in home prices has also buoyed optimism for the mortgage business and banks profits thereto.  

 

Goldman Sachs Group Inc NYSE: GS

Market Reaction: $399.80 ▲ 8.60 (▲ 2.20%)

Highlights

“The third quarter saw strong operating performance and an acceleration of our investment in the growth of Goldman Sachs,” David M. Solomon, the company’s chief executive, said in a statement.

Soloman cited the acquisitions of NN Investment Partners, a Dutch asset manager, and GreenSky, a financial technology company that originates home improvement loans, as efforts to expand its operations. In August, Goldman Sachs acquired NN Investment Partners platform for around $1.5 Billion, intending to pair it with Goldman's Marcus direct bank division.

Interest income.

Net Interest income: $1.56 billion, versus $1.43 billion expected by Bloomberg consensus.

Financial advisory revenues.

Investment bankers advising on mergers and acquisitions brought in a record $1.65 billion in revenue, up 225 percent from a year earlier. 

Earlier this week, deal makers pulled in record fees at Bank of America and record revenue at Morgan Stanley, while Citigroup had its best quarter for mergers and acquisitions in a decade. JPMorgan also posted big numbers after cashing in on the strong market for advising companies.

Asset management revenues in addition to the SPAC boom, activity for more traditional IPOs

The firm’s consumer and wealth management division saw revenue rise 35% to $2.02 billion, exceeding the $1.79 billion estimate.

Trading Revenue

  • Revenue in the bank’s markets division climbed 23% to $5.61 billion, as an expected slowdown in bond trading was offset by a surge in financing results.
  • Bond trading revenue of $2 billion edged out the $1.97 billion StreetAccount estimate,
  • Equities trading of $1.92 billion missed the $2.08 billion estimate.
  • Equities financing revenue more than doubled year over year to a record $1.18 billion
  • Fixed income financing rose 55% to $513 million.

Credit Loss

Where the other big banks released loan loss reserves to bolster third quarter numbers, Goldman’s strategy has been growing the business.

Goldman is the last of the six biggest U.S. banks to report earnings. JPMorgan, Bank of America, Morgan Stanley, Citigroup and Wells Fargo exceeded expectations for profit and revenue, helped by reserve releases and strong investment banking revenue.

Dividends

Goldman maintained its quarterly dividend of $2 per share to be paid at the end of the year.

 The difference between GS and JPM is that GS has much lighter exposure to consumer-oriented products, such as credit cards, auto loans, and mortgages. Consumer loan defaults are a more significant risk factor for JPM, necessitating higher reserves.

Source: Goldman Sachs

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