Goldman Sachs (NYSE:GS) blew the doors of its earnings report this morning as it announced net revenues of $10.78 billion and a record quarterly diluted earnings per share (EPS) of $9.68 and annualized ROE of 17.5%, the highest quarterly ROE since 2010. Wall Street had been expecting an EPS of around $5.57 per share.
Goldman said that Investment Banking generated quarterly net revenues of $1.97 billion, including the second-highest quarterly net revenues in equity underwriting.
Global Markets generated quarterly net revenues of $4.55 billion, showing continued strength in Fixed Income, Currency and Commodities (FICC) and Equities.
Asset Management generated quarterly net revenues of $2.77 billion, another strong number indicating solid performance in Equity investments.
Consumer & Wealth Management, which includes Goldman’s digital banking venture Marcus, generated quarterly net revenues of $1.49 billion, a record for net revenues in Consumer banking and 13% higher than Q3 last year and 10% higher versus Q2 of 2020.
The solid report helped to boost the entire market before the open and shares in Goldman rose higher in pre-market trading.
Specifically, in the Consumer segment, net revenues in Consumer banking were $326 million, a whopping 50% higher than the third quarter of 2019, primarily reflecting higher credit card loan balances. Of note, is the fact that Goldman has partnered with Apple (NASDAQ:AAPL) on a credit card product.
Goldman’s provision for credit losses was $278 million for the third quarter of 2020, compared with $291 million for the third quarter of 2019 and $1.59 billion for the second quarter of 2020.
Goldman said the decrease compared with the third quarter of 2019 primarily reflected reserve reductions from pay downs on corporate lines of credit and consumer installment loans, partially offset by reserve increases from individual impairments related to wholesale loans and growth in credit card loans. Goldman’s allowance for credit losses was $4.33 billion as of September 30, 2020.
Goldman’s earnings call is scheduled for later this morning and should provide additional insight into overall performance including the bank’s Fintech strategy. Digital bank Marcus currently operates in the US and the UK but is expected to extend its reach into other markets at some point in the future. In the past, Goldman has noted that it gets little credit for its consumer banking arm – a sector of its business that is growing rapidly.
Some notes from the earnings call.
Goldman is more bullish on the US economy than previously and anticipates growth of around 6% in 2021. But COVID has impacted the company – just like it has everyone else compelling it to be prudent with underwriting and managing credit risk.
Marcus deposits grew to $96 billion during the quarter – an increase of $4 billion from Q2. Goldman has pumped the brakes on deposits a bit, in part due to regulatory caps in the UK, by lowering interest paid on savings accounts. As for pre-pandemic expectations and their ability to attract deposits – Goldman exceeded their own expectations.
Funded consumer loans have “remained stable” at around $7 billion with $4 billion coming from Marcus and $3 billion coming from Apple Card. Marcus unsecured loans closed lower than the beginning of the year and Apple Card higher than the beginning of the year indicating growth in the partnership with the world’s biggest tech firm.
Goldman said that its “credit card platform” may be leveraged for additional partnerships over time – so it is not just about Apple – without indicating any sort of timeline.
Goldman said that it is committed to growing a consumer platform but it will be built over a period of time so the company is being methodical in its construction of a digital banking entity. Goldman noted they are moving away from “compensation intensity” alluding to the fact that digital financial services require fewer full-time employees in comparison to traditional banking entities.