Goldman Sachs Beats on Top Line, Bottom Line Declines [u]

Goldman Sachs (NYSE:GS) has reported Q3 earnings that delivered strong revenues but reversed on the bottom line in comparison to Q3 2022. Goldman reported revenues of $11.82 billion and net earnings of $2.06 billion for the quarter ending in September.

Earnings per share (EPS) were $5.47 for Q3 2023 compared with $8.25 for the third quarter of 2022 and $3.08 for Q2 of 2023. Year to date, the earnings came in at $17.39 compared with $26.71 for the first nine months of 2022.

Goldman highlighted some of the reasons earnings fell short, including the recently announced sale of online lending GreenSkye along with “historical principal investments” and “modest ongoing losses in connection with the firm’s residual Marcus loans portfolio and operating Personal Financial Management.”

In a prepared statement, Goldman CEO David Solomon said they are making significant progress in executing their strategic priorities, predicting a stronger company in 2024.

“I also expect a continued recovery in both capital markets and strategic activity if conditions remain conducive. As the leader in M&A advisory and equity underwriting, a resurgence in activity will undoubtedly be a tailwind for Goldman Sachs,” said Solomon.

Goldman has been in retreat regarding its venture into consumer Fintech, which was launched with fanfare but failed to hit expectations. Solomon, under pressure from investors, has backed off his plans to focus on the more traditional aspects of the investment bank. Global Banking & Markets generated Q3 net revenues of $8.01 billion, driven by Fixed Income, Currency and Commodities (FICC), and “record quarterly net revenues” in financing and Equities.

Goldman’s Platform Solutions generated Q3 net revenues of $578 million, which is 53% higher than the amount in the prior year period. This is the segment of the business that powers services like Apple Card and GM’s bespoke card. Goldman said the increase in Consumer Platforms net revenues primarily reflected higher average credit card balances, partially offset by lower net revenues from the GreenSky loan portfolio. Transaction banking and other net revenues were lower, reflecting lower average deposit balances.

Platform Solutions continues to lose money, with a net loss of $461 million during the quarter and a loss of $1.386 for the 9 months of 2023.

The earnings call should shed additional light on the status of Goldman’s Fintech operations and its expectations for the coming year.

The earnings presentation may be viewed here.

During the call, Solomon emphasized they are simplifying Goldman Sachs and focusing on two areas: its global banking franchise and asset and wealth management. Note the platforms business was not on the shortlist.

Asked if the economics can work for the platform business, including Apple, or should they dispose of the business, Solomon said the new hire of Bill Johnson aims to better operate the credit card business. Solomon shared that they have worked to narrow their focus, adding that their partnership with Apple and GM are long-term partnerships. Solomon explained they do not have the ability to exit the arrangement, and their focus is to make them profitable. It appears that Goldman is locked into a marriage with Apple for an unknown amount of time.

He added that they will continue to work with their partners to investigate what is best for Goldman Sachs over the long run.

Tenacious banking analyst Mike Mayo asked who pays the price for the losses on consumer loans, GreenSky, and the consumer business in general. Solomon responded that it is the leadership of the firm, including himself, adding they are responsible and accountable for everything they do.

Solomon said he is happy they “pivoted” and, in hindsight, they would have done things differently. He stated that the “drag” from platforms is getting smaller, and hopefully, it will be eradicated.

Solomon did not say they are looking to exit the arrangement, but he also did not voice a strong commitment to Apple, etc., in the long run. It would not be surprising if Goldman parted ways with its platform business either via a sale or spin-off from its core business. As for Solomon’s tenure at Goldman, Mayo’s pointed questions reflect chatter that Solomon is on thin ice due to the poor results driven by his consumer Fintech venture.



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