Goldman Sachs Tops Earnings Expectations, Marcus Banking Net Revenues Significantly Higher – Deposits End Year at $97 Billion [u]

Goldman Sachs (NYSE:GS) has released Q4 earnings topping expectations with top-line revenue ahead of anticipated results. Shares in Goldman rose slightly in pre-market trading. Goldman has traded significantly higher since the beginning of 2021.

Earnings per share for Q4 came in at $12.08 with full-year 2020 generating $24.74 a share – this compares to $21.03 for 2019.

Overall, Goldman reported net revenues of $44.56 billion, 22% higher than the year prior, and net earnings of $9.46 billion for the year ended December 31, 2020. Net revenues were $11.74 billion and net earnings were $4.51 billion for the fourth quarter of 2020.

Investment Banking generated record net revenues of $9.42 billion, driven by record equity underwriting net revenues and the second-highest annual net revenues in debt underwriting.

Global Markets generated net revenues of $21.16 billion, 43% higher than 2019, and its highest annual net revenues in ten years, reflecting strong results in both Fixed Income, Currency, and Commodities (FICC), which included the third-highest annual net revenues in intermediation and record net revenues in financing, and equities, which included record net revenues in derivatives.

Asset Management generated net revenues of $7.98 billion, including record management and other fees.

Firmwide assets under supervision increased $286 billion during the year to a record $2.15 trillion.

Regarding the growing consumer division, Consumer & Wealth Management generated record net revenues of $6.00 billion, including record Wealth management net revenues and significantly higher Consumer banking net revenues.

Goldman said it continued to scale its digital consumer deposit platforms, as consumer deposits increased by $37 billion during the year to $97 billion. Lending and Credit ending the year at around $8 billion. In addition, the firm formally launched its transaction banking business in the U.S. and increased deposits to $29 billion.

On a more granular level, Marcus generated $347 million in revenue in Q4 a 52% increase over the same quarter year prior. For the year, Marcus generated $1.213 billion in revenue – a 40% increase versus 2019.

Goldman expects Marcus to hold over $124 billion in deposits by 2024.

By leveraging a “state of the art partnership” Goldman sees Marcus growing its three foundations of Marcus: Spending; Borrowing/Credit; Savings/Investment. It will continue to build out partnerships similar to Apple and GM – embedding capabilities in partner ecosystems or distributed Fintech. A new consumer wealth management feature should be released at some point in 2021.

The Goldman earnings call takes place at 930AM ET.


During the call, Goldman said they believe that traditional banking has not kept up with the pandemic. Marcus and affiliated consumer-focused products are moving to the next phase of growth. Marcus Invest will be launched this quarter in the US and later this year the service will be launched in the UK. Individuals with as little as $1000 will be able to benefit from this service.

Digital checking will be released later this year as well.

The idea is to provide a full stack of financial services that are highly integrated while combining smart money management tools.

Because of the growing number of partnerships beyond Apple, such as Amazon, etc. means the cost of customer acquisition drops dramatically as they will have a touchpoint of tens of millions of potential customers. Embedded Fintech will play an important role as well.

Overall, 2020 exceeded Goldman’s expectations even with tighter underwriting standards that deliberately slowed growth. Marcus may hit break-even as soon as 2022 – one year later than expected and contingent upon any investment initiatives.

Goldman was asked about competitors such as Chime and SoFi – two companies that enjoy relatively high valuations. Goldman said that Fintechs tend to be much more narrow in scope and they (Marcus) have a much broader more integrated offering than either Chime or SoFi. While stating they will not comment on valuation, Goldman went on to comment about valuation saying they expect to be valued more “fulsomely” at some point in the future.

Goldman said it is taking a long term view:

“We feel good about it.”

In the end, Marcus is envisioned as a primary bank that will grow, over time, due to the more comprehensive offerings, as well as the Goldman brand allure.

 


2020-q4-strategic-update

 

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