As expected, Goldman unveiled a third reorganization in four years on Tuesday.
Consistent with media reports, the firm is now arranged in three operating segments: Asset & Wealth Management, Global Banking & Markets and Platform Solutions.
The shakeup (it’s actually a re-consolidation) was pitched in the Q3 slide deck as “the next step in our strategic evolution.” Invariably, some will suggest it’s actually a step backwards, not necessarily in terms of where the firm is headed from a performance or an operational perspective, but rather literally. It feels, in part anyway, like a reversion to the old setup.
Given that, “evolution” might be a misnomer. Not according to David Solomon, though, who tried to square the circle. “In January 2020, we outlined our strategy in clear and direct terms, introducing a plan to grow and strengthen our core businesses, diversify our products and services and operate more efficiently as we drive higher, more durable returns,” he said Tuesday. “Today, we enter the next phase of our growth, introducing a realignment of our businesses that will enable us to further capitalize on the predominant operating model of One Goldman Sachs as we better serve our clients.”
The “new” arrangement, Goldman said, will allow the firm to “grow and strengthen existing businesses,” “diversify products and services” and “operate more efficiently.”
As far as I could tell, Goldman “operated” pretty “efficiently” in Q3. EPS of $8.25 easily topped estimates ($7.75) and firmwide revenue of $11.98 billion looked like a solid beat too.
Mercifully for those who enjoy making apples-to-apples comparisons, Goldman broke out results using the “old” setup. Trading was solid. FICC revenue rose 41% YoY to $3.53 billion, $500 million ahead of consensus. Revenue was “significantly higher” in rates and currencies, up in commodities and credit, and down markedly in mortgages for obvious reasons.
Equities revenue dropped 14%. Overall, Markets revenue of $6.2 billion was up 11% and better than estimates (figure above).
The story in IB was the same for Goldman as it was for everyone else. Fees plunged 57%. Equity underwriting was down 79%, debt underwriting 55% and advisory 41% (all YoY, obviously).
Still, advisory revenue of $972 million was a beat, and overall IB revenue of $1.58 billion was close enough to consensus to count as passable, considering the onerous circumstances.
Anything much better than what Goldman actually reported in IB would’ve been a small miracle, although I realize that’s somewhat inconsistent with my contention from last week that lowered bars should always be cleared. The bank’s backlog was flat QoQ.
In Consumer (still included with Wealth Management for Q3), revenues of $744 million nearly doubled from a year ago thanks to higher credit card balances and better deposit spreads. Of course, growth in cards means higher provisions, particularly when the economic environment is uncertain. In Consumer & Wealth, the provision for credit losses tripled, to $451 million. Firmwide, the provision was $515 million, far less than expected, but nevertheless indicative of “continued broad concerns on the macroeconomic outlook.”
Net interest income rose to $2.04 billion, more than half of which came from Consumer. Loans rose “slightly” from the prior period to $177 billion. That was a bit better than anticipated.
Headcount rose 4% from the prior quarter, comp costs jumped 14% YoY and non-compensation expenses rose “significantly,” thanks to growth “initiatives” and money set aside for litigation and regulatory proceedings.
In remarks to the media immediately following the release of results, Solomon said there’s a “good chance” we’ll have a recession. As for dealmaking, he echoed James Gorman. Capital markets don’t just close for years at a time, he insisted.
As far as the reorganization, Solomon said the firm’s “fundamentals” haven’t changed.
