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Goldman (GS) Q3 Earnings Beat Estimates on Strong IB Revenues

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The Goldman Sachs Group, Inc.’s GS third-quarter 2021 earnings per share of $14.93 have significantly surpassed the Zacks Consensus Estimate of $9.78. Further, the bottom line improved 66% from the year-earlier quarter.

The stock rallied 2.9% during the pre-market trading, reflecting investors’ optimism with the results. Notably, the full-day trading session will display a clearer picture.

While strength in the equity underwriting, wealth management and consumer banking businesses acted as a tailwind, the bank’s results were hurt by lower Fixed Income, Currency and Commodities Client Execution (“FICC”) revenues.

Impressive financial advisory revenues, owing to the rise in industry-wide completed mergers and acquisition transactions, acted as tailwinds.

Net earnings of $5.38 billion increased 60% from the prior-year quarter.

Revenues Jump, Expenses Rise

Net revenues of $13.61 billion rose 26% from the year-ago quarter. The top line beat the Zacks Consensus Estimate of $11.25 billion.

Total operating expenses flared up 6% year over year to $6.59 billion.

Net provisions for litigation and regulatory proceedings of $52 million were recorded compared with the prior-year quarter’s $256 million.

Provision for credit losses was $175 million, lower than $278 million in the prior-year quarter.

Segmental Performance Improves

The Investment Banking (IB) division generated revenues of $3.7 billion in the reported quarter, up 88% year over year. Results reflect record net revenues in financial advisory and ongoing strength in underwriting activities. Corporate lending revenues of $152 million significantly increased from the prior-year quarter.

The Global Markets division recorded revenues of $5.61 billion, up 23% year over year. The uptick indicated stable net revenues in FICC due to higher revenues from FICC financing, offset by lower FICC intermediation revenues. Also, a rise in equities revenues (up 51%) was recorded due to higher equities intermediation and financing.

The Consumer and Wealth Management division’s revenues were $2.02 billion, which crossed the $2-billion mark for the first time and were 35% higher than the year-ago reported figure. Increased revenues from wealth management (up 40%) and consumer banking (up 17%) resulted in the upsurge.

The Asset Management division recorded revenues of $2.28 billion, indicating an 18% year-over-year decline. The downside resulted from notably lower net revenues in equity investments as well as lending and debt investments.

Firmwide assets under supervision reached a record of $2.37 trillion, up 16.5% year over year.

Capital Position Weak

As of Sep 30, 2021, Common Equity Tier 1 ratio was 14.1% under the Basel III Standardized Approach, highlighting valid transitional provisions. The figure was down from the prior-year quarter’s 14.5%. The company’s supplementary leverage ratio (on a fully phased-in basis) was 5.6% as of Sep 30, 2021, down from the prior-quarter figure of 6.8%.

Nonetheless, return on average common shareholders’ equity (on an annualized basis) improved to 22.5% in the reported quarter.

Capital Deployment Update

In the quarter under review, Goldman returned $1.70 billion of capital to common shareholders. This included share repurchases worth $1 billion and common stock dividends of $700 million.

Conclusion

Goldman’s results highlight another impressive quarter. Elevated mergers and acquisition deals along with strong initial public offering activities were the driving factors. The company’s well-diversified business, apart from its core IB operations, continues to ensure earnings stability.

Also, the company announced the acquisitions of NN Investment Partners and GreenSky, Inc. in the third quarter. This will drive higher and more durable returns. Both transactions are expected to close by the end of first-quarter 2022.

However, increasing expenses hurt bottom-line growth.

The Goldman Sachs Group, Inc. Price, Consensus and EPS Surprise

The Goldman Sachs Group, Inc. Price, Consensus and EPS Surprise
The Goldman Sachs Group, Inc. Price, Consensus and EPS Surprise

The Goldman Sachs Group, Inc. price-consensus-eps-surprise-chart | The Goldman Sachs Group, Inc. Quote

Currently, Goldman has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Release Dates of Other Companies

KeyCorp KEY and BankUnited, Inc. BKU are scheduled to release quarterly numbers on Oct 21, while Fifth Third Bancorp FITB will report results on Oct 19.


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