Goldman Sachs Tops Estimates, Moves Forward with Reorganized Bank

Goldman Sachs (NYSE:GS) topped estimates this morning, reporting earnings per share (EPS) of $8.25, handily beating analyst expectations. While the investment bank experienced significant declines in top and bottom line numbers due to the challenging economic environment, performance was welcomed by investors.

According to the earnings release, Goldman reported net revenues of $11.98 billion and net earnings of $3.07 billion for Q3 2022. Year over year, net revenue declined by 12% during the quarter and net earnings declined by 43%

Net revenues were $36.77 billion and net earnings were $9.94 billion for the first nine months of 2022. Down by 21% and 44%, respectively.

Net revenues in Investment Banking were $1.58 billion for the third quarter of 2022, 57% lower than Q3 of 2021 and 26% lower than the Q2 of 2022.

Net revenues in Global Markets were $6.20 billion for Q3 of 2022, 11% higher than the third quarter of 2021 and 4% lower than the second quarter of 2022.

Net revenues in Asset Management were $1.82 billion for the third quarter of 2022, 20% lower than the third quarter of 2021 and 68% higher than the second quarter of 2022.

Net revenues in Consumer & Wealth Management were $2.38 billion for the third quarter of 2022, 18% higher than the third quarter of 2021 and 9% higher than the second quarter of 2022.

A bright spot in the report was consumer banking, or Marcus, which reported net revenues of $744 million, nearly double the amount in the third quarter of 2021, reflecting significantly higher credit card balances and higher deposit spreads.

Goldman outlined its new operating segments, which were revealed earlier this week. Goldman will be restructuring as follows:

  • Asset and Wealth Management
  • Global Banking and Markets
  • Platform Solutions

Marcus and consumer banking will now operate under asset and wealth management. Fintech solutions like credit cards (think Apple) and embedded financial services will be bundled in Platform Solutions.

Goldman noted that Marcus now holds $110 billion in deposits, approximately $19 billion in loans, and over 15 million customers.

During a visit with CNBC this morning after the earnings were released, Goldman CEO David Solomon said they had learned a lot about consumer banking and their new credit card partnerships and adjusted according. For Marcus, it appears it will be more focused on affluent customers while its Fintech ventures will pursue more services and embedded offerings. Solomon said the relationship with Apple had been renegotiated and extended to the end of the decade, explaining that Apple Card users tend to pay off their balances quicker than traditional cards meaning the credit balances were less profitable than traditional offerings. While not providing details, Solomon indicated the renewed agreement was better for Goldman.

Shares in Goldman were higher in pre-market trading, showing a bounce of over 3%.

The earnings call will be held at 930 AM ET today.

The conference call will be accessible as an audio webcast via the Goldman website

Update: From the earnings call.

A fair amount of discussion covered the reorganization of Goldman. For the full year, Goldman will report under the new structure.

Clearly, Goldman is looking to target institutional customers by providing Fintech services with an end-to-end cloud solution for customers to build modern digital financial services. Goldman noted they have already built a consumer digital bank while successfully launching partnership products, specifically Apple Card and GM, American Express, Stripe, etc.

Goldman noted they are committed to expanding their relationship with Apple, reflecting on the forthcoming Apple Savings feature. While not mentioning any other services, it should be obvious that the Bank of Apple is on the way. This means checking, investing, bill pay, and more. Goldman said its partnership with Apple was “very strong” with a “lot of opportunity.”

Near-term opportunities also include existing customers where Goldman can integrate its Fintech services. The bank mentioned they can provide their digital services to their clients and scale in a meaningful way.

Regarding Marcus, Goldman’s consumer digital bank, the company said they have learned a lot and yes there have “been some bumps” but there are meaningful opportunities. While Marcus is losing money (analyst Mike Mayo pressed Goldman on this), Goldman expects that over time, this will change and “deliver accretive revenue for the firm.” Goldman is not focused on a massive digital banking operation but one that targets the mass affluent, customers interested in other products like wealth management – attracted by the Goldman Sachs brand. Marcus has also generated $110 billion in retail deposits – thus providing access to inexpensive capital, something that should not be ignored.

 

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