GOLDMAN SACHS GROUP INC (GS) Earnings Summary for Q3 FY2024

Key Metrics

• Net Revenue: $12.70 billion (7% yoy)
  • Global Banking & Markets: $8.55 billion
  • Investment Banking Fees: $1.87 billion
    • Advisory: $875 million (up yoy)
    • Equity Underwriting: $385 million (25% yoy)
    • Debt Underwriting: $605 million (46% yoy)
  • FICC: $2.96 billion (down yoy)
    • Financing: $949 million (30% yoy)
  • Equities: $3.50 billion (18% yoy)
    • Intermediation: $2.21 billion (29% yoy)
  • Asset & Wealth Management: $3.75 billion (16% yoy)
    • Management & Other Fees: $2.62 billion (3% qoq)
    • Private Banking & Lending: $756 million (up qoq)
  • Platform Solutions: $391 million
• Provision for Credit Loss: $397 million (increased from $7 million yoy)
• Non-Compensation Expense: $4.20 billion (down 14% yoy)
• Assets Under Supervision: $3.10 trillion (record high)

Forward guidance

1. 2024 Fundraising Expectation: Goldman Sachs expects 2024 fundraising to exceed $60 billion, driven by strong demand across asset classes including private credit, private equity, secondaries, and infrastructure.
2. Durable Revenue Growth: The firm anticipates growing more durable revenues at a high single-digit pace over the coming years.
3. Asset Management Fees Target: Goldman Sachs aims to achieve $10 billion in management and other fees for 2024.
4. Incentive Fees Goal: The company continues to expect to reach an annual target of $1 billion in incentive fees over the medium term.
5. Pre-Tax Margin Target: The pre-tax margin in Asset and Wealth Management is expected to improve further, with a mid-20s target already achieved.
6. Effective Tax Rate Guidance: For the full year 2024, Goldman Sachs expects an effective tax rate of approximately 22%.
7. Capital Return Strategy: The firm returned $2 billion to common shareholders in the quarter, including $978 million in dividends and $1 billion in stock repurchases.

Key takeaways

• Positives:
  • David Solomon noted, "We see significant pent-up demand from our clients," indicating strong future activity in investment banking, particularly in M&A, which could drive revenue growth.
  • The Asset and Wealth Management segment reported record assets under supervision exceeding $3 trillion, with "27 consecutive quarters of long-term net inflows," showcasing robust client confidence and demand.
  • Goldman Sachs raised over $50 billion in alternatives fundraising year-to-date, with expectations to exceed $60 billion for 2024, reflecting strong market interest in private equity and credit.
  • Solomon emphasized, "Our client franchise is stronger than ever," suggesting a solid competitive position and resilience in client relationships amid market fluctuations.
  • The firm’s focus on improving the durability of revenue streams, particularly in financing, led to record financing revenues in FIC, indicating effective strategic execution.
• Negatives:
  • Solomon acknowledged, "Our results were impacted by selected items including the narrowing of our consumer footprint," which reduced ROE by 80 basis points, highlighting ongoing challenges in the consumer segment.
  • Regulatory uncertainties were a concern, with Solomon stating, "We continue to have concerns about the overall regulatory process," which could impact capital requirements and operational flexibility.
  • Denis Coleman mentioned, "We are still not operating at 10-year averages in M&A and equity volumes," indicating potential headwinds in investment banking performance.
  • The firm is experiencing competitive pressures, with Solomon noting, "There are always going to be competition," suggesting that maintaining market share may require ongoing investment and adaptation.
  • The transition of the GM card platform could lead to continued operating losses until its closure, as indicated by Coleman, which may affect short-term profitability.

Peer Summary

• Investment Banking Sentiment: Morgan Stanley noted, "We are in the early stages of a multi-year capital markets recovery," contrasting with Goldman Sachs' concerns about M&A and equity volumes not meeting historical averages, indicating a potential divergence in market outlooks.
• Wealth Management Trends: JPMorgan Chase reported, "For the quarter, long-term net inflows were $72 billion," suggesting strong client demand in wealth management, while Goldman Sachs highlighted challenges in its consumer segment, indicating varying client engagement levels.
• Credit Quality Concerns: Citigroup acknowledged, "Lower discretionary spending is impacting our retail services portfolio," which aligns with Goldman Sachs' increased provision for credit loss, reflecting broader sector concerns about consumer behavior.
• Regulatory Pressures: Both Goldman Sachs and Wells Fargo expressed concerns about regulatory uncertainties, with Goldman noting, "We continue to have concerns about the overall regulatory process," while Wells Fargo emphasized the need for compliance work, indicating a shared challenge across the sector.
• Loan Demand Weakness: Wells Fargo mentioned, "Commercial loan demand remains weak, reflecting economic uncertainty," which may resonate with Goldman Sachs' cautious outlook on its consumer footprint and investment banking performance.