“What does this mean for Goldman?”
That was the question on market participants’ minds this week after the bank’s rivals reported blockbuster investment banking results for the third quarter.
On Friday, Goldman answered. IB revenue for Q3 was $3.7 billion, up 88% and well ahead of consensus. Advisory net revenues were a record $1.65 billion, up 225% YoY (figure below).
The bank was #1 in M&A and equity-related offerings.
Overall, the $3.7 billion in IB revenue was the second most ever. Revenues were “significantly” higher in equity and debt underwriting (versus Q3 2020). The bank cited private placements, convertible offerings and IPOs.
Although Goldman’s backlog fell from the record levels seen at the end of Q2, it “remained at an elevated level” and is “significantly higher” compared to the end of last year.
Markets was a beat too. FICC revenue of $2.51 billion was flat YoY, but exceeded estimates by a half-billion. Equities revenue was $3.1 billion, up 50% YoY and nearly a billion more than analysts expected.
Overall, trading revenue was $5.61 billion (figure above). The estimate was $4.14 billion. Goldman described the operating environment as one of “solid client activity levels, generally rangebound volatility and supportive equity markets.”
In Asset Management (which used to be Investment Management before Goldman revamped how it breaks down results by division), revenues fell sharply after more than doubling in the prior quarter (figure below).
The bank reported “significant net losses” from investments in public equities, only partially offset by gains in private shares.
The overall top line result was a huge beat. Net revenue of $13.61 billion exceeded the highest estimate by around a billion. On the bottom line, EPS was $14.93. Analysts weren’t even in the same ballpark. Consensus was $9.92. I don’t know why they (bank analysts) bother.
I’m sure there’s some parsing worth doing, and plenty of snark to be had, but on a quick read, the results were an across-the-board beat.
Solomon said that “looking forward, the opportunity set continues to be attractive across all of our businesses.” With apologies to anyone (i.e., a couple of well-known bloggers) who will invariably waste hours Friday looking for cheap Goldman jokes, that’s pretty much all you need to know. The outlook is good for “all” of the bank’s businesses.
Goldman has many business it runs well and others, not so much. I have positions in eight Business Development Companies (BDCs). The only one having problems, and my biggest loser, is the BDC managed by Goldman (GSBD). While yield on the stock is very nice, two years worth has been swallowed by unrealized losses on the stock. I hope Soloman’s pronouncement that the outlook for all GS businesses was “good” is correct, but I won’t be holding my breath.
H-Man, not really a big surprise, all the major banks hit homeruns. Goldman just hit more. It may be related to that vampire squid.