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Source: Brokerage China
On October 18, Goldman Sachs reported third-quarter earnings, outperforming Wall Street analysts' previous forecasts. At the same time, Goldman Sachs also threw out the "largest in history" organizational restructuring plan, planning to reorganize the business into three separate divisions.
According to foreign media reports, Goldman Sachs plans to merge investment banking and trading business into one division, asset management and wealth management business into a second division, while integrating transaction banking, banking technology platforms and other businesses in the third division.
Up to now, major Wall Street giants including Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citibank, Wells Fargo and so on have successively disclosed financial reports. Affected by the market, the performance of these major banks in the third quarter has declined compared with the same period last year, especially the investment banking business. However, in the context of the Fed's interest rate hike and rising interest rates, net interest income has become the highlight of the third quarterly report of Wall Street banks.
Goldman Sachs released third-quarter earnings
On October 18, Goldman Sachs released its financial report for the third quarter of 2022. Goldman Sachs' net revenue in the third quarter was $11.98 billion, down 12% year-on-year, exceeding market expectations of $11.43 billion, and quarterly net profit was $3.069 billion, down 43% year-on-year.
In the first three quarters of 2022, Goldman Sachs had net revenue of $36.77 billion and net profit of $9.94 billion.
Goldman Sachs' diluted earnings per share (EPS) were $8.25 in the third quarter of this year, compared to $14.93 in the third quarter of 2021, but still well above Wall Street's consensus expectation of $7.69; Goldman Sachs EPS was $26.71 in the first nine months of this year, compared to $48.59 in the first three quarters of 2021.
Such financial performance was slightly better than previously expected by Wall Street analysts. After the earnings report, Goldman Sachs (GS) surged more than 5% after the opening of Tuesday.
By business, Goldman Sachs' net revenue in consumer and wealth management increased 18% year-over-year. Net income from wealth management was $1.217 billion, up 95% year-over-year, reflecting an increase of 95% to $744 million. This was mainly due to a significant increase in credit card balances and an increase in deposit spreads.
It is worth mentioning that Goldman Sachs' investment banking revenue in the third quarter fell 57% from the same period last year to $1.58 billion, but this was partially offset by a significant increase in global market revenue, which increased 10.5% to $6.2 billion. The net income of Goldman Sachs' asset management business fell 20% year-on-year.
The earnings report also revealed that Goldman Sachs' board of directors announced that it will pay a dividend of $2.50 per share on December 29, 2022 to ordinary shareholders of record on December 1, 2022.
Goldman Sachs ushered in the largest structural adjustment in history
At the same time as the earnings report, Goldman Sachs also unveiled a restructuring plan to reorganize the business into three divisions.
David Solomon, Chairman and CEO of Goldman Sachs, said in the earnings report: "In January 2020, we outlined our strategy in clear and straightforward terms, launching a plan to grow and strengthen our core business, diversify our products and services, and improve operational efficiency while achieving higher and more lasting returns. ”
David Solomon further said in the earnings report: "Today, we enter the next phase of growth with a restructuring of our business that will allow us to further leverage the primary operating model of 'One Goldman Sachs' to better serve our clients. ”
It is reported that before the announcement of Goldman Sachs' earnings report on Tuesday, many foreign media had reported on the structural adjustment, and called it "the largest structural adjustment in the history of Goldman Sachs".
Earlier, the Wall Street Journal quoted people familiar with the matter as saying that Goldman Sachs plans to merge the investment banking and trading businesses into a single division; The asset management and wealth management businesses will be merged into a single division, and Marcus, Goldman's lending platform for individual consumers, will be merged into a second division as part of the Asset and Wealth Management division.
The third segment will integrate transaction banking, banking fintech platforms, specialty lenders Greensky, and joint ventures with Apple and General Motors. Transaction banking aims to provide a secure, flexible, and easy-to-use global transaction banking platform.
At the same time as the organizational structure is adjusted, the management of Goldman Sachs may also be adjusted accordingly. According to the Wall Street Journal, Marc Nachmann, global co-head of Goldman Sachs' global markets division, may be transferred to help Goldman Sachs manage the combined asset and wealth management division. According to a previous Bloomberg report, the combined investment banking and trading department may be headed by Dan Dees and Jim Esposito and Ashok Varadhan, who are currently the global co-heads of Goldman Sachs' investment banking business, and Varad Khan is currently the co-head of Goldman Sachs' global markets division.
According to the Wall Street Journal, after the structural adjustment, Goldman Sachs' organizational structure may be closer to Morgan Stanley, JPMorgan Chase and other peers. It is reported that Goldman Sachs CEO David Solomon is trying to shift the center of the business to a business that can generate stable revenue in any environment. In recent decades, a keen sense of trading and investment banking has been Goldman Sachs' calling card, contributing huge profits to Goldman Sachs. But from an investor's perspective, investors are worried that it will be difficult to sustain these business successes when market conditions change.
Foreign media commented that Goldman Sachs' stock price has been difficult to keep up with its competitors. According to FactSet, Goldman's share price was about 0.9 times its book value as of June. This compares with 1.4 times Morgan Stanley and 1.3 times JPMorgan Chase.
Goldman Sachs has been trying to narrow the gap with its peers by strengthening businesses that have been given higher valuations by the market. For example, managing money for the wealthy, pension businesses, and managing institutional funds are more profitable than other financial services and often don't pose a risk to a company's balance sheet. At the same time, Goldman Sachs has also invested heavily in consumer banking, which is more predictable for investors than traditional consumer banking, which is deposit-taking and lending.
Wall Street giants have released results
As of now, the third-quarter financial results of major Wall Street giants including Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citibank, Wells Fargo and others have been disclosed one after another.
Overall, despite the continued impact of market uncertainty in the second half of this year, Wall Street's stocks and bonds have double-killed, and the performance of Wall Street banks has declined compared with the same period last year. However, in the context of the Fed's interest rate hike and rising interest rates, net interest income has become the highlight of the third quarterly report of Wall Street banks, and many major banks have exceeded market expectations.
Specifically, JPMorgan Chase had the best third-quarter performance. JPMorgan's adjusted revenue for the third quarter was $33.49 billion, slightly better than analysts' estimates of $32.35 billion; third-quarter net income fell 16.7 percent to $9.74 billion, compared with $11.19 billion in the same period last year; and earnings per share were $3.12, also higher than analysts' consensus range of $2.88-2.92.
By business, J.P. Morgan's consumer and community banking revenue was $14.3 billion, up 14% year-over-year. Corporate and investment banking revenue of $11.9 billion, down 4% year-over-year; Commercial banking revenue was US$3.05 billion, up 21% year-on-year; Asset and wealth management revenue increased 6% year-over-year to US$4.54 billion.
Revenue also exceeded expectations were Wells Fargo, whose adjusted revenue in the third quarter was $19.15 billion, up 3.56% from the same period last year and higher than market expectations of $18.751 billion. In addition, Citi's fiscal third-quarter revenue was $18.51 billion, up 6% year-over-year.
Morgan Stanley, on the other hand, fell short of expectations. Morgan Stanley's net revenue in the third quarter of this year was $12.99 billion, a year-on-year decrease of about 12%; Net income was $2.63 billion, down approximately 29% year-over-year, and diluted earnings per share were $1.47. By business, Morgan Stanley's wealth management grew by $65 billion in the third quarter, while fixed income became one of the few items in the company to grow significantly, while investment banking and equities shrank again.
It is worth mentioning that in the third quarter of this year, the investment banking business of Wall Street banks collectively encountered a "cold wave". Among them, Morgan Stanley's investment banking business plunged 55% from the same period last year to US$1.28 billion, and Citi Investment Bank's revenue plummeted 64% to US$630 million.
Morgan Stanley CEO James P. Gorman said in a conference call that the bank's investment banking business has deteriorated due to the market environment, and the slowdown in global transactions has dragged down the investment bank's core underwriting business. He expects that the outlook for investment banking transactions may continue to deteriorate during the year as the Fed raises interest rates to curb inflation expectations, the economic growth outlook is clouded, and the geopolitical crisis triggers financial market shocks that affect investor sentiment.
Editor-in-charge: Zhu Yumeng
Proofreader: Tao Qian
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