Goldman’s profit beats estimates as dealmaking rebound boosts investment banking

[NEW YORK] Goldman Sachs beat Wall Street expectations for third-quarter profit on Tuesday (Oct 14), as its investment bankers earned higher advisory fees and rallying markets boosted revenue from managing client assets.

The bank’s prediction for a banner year for dealmaking has materialised as corporations revive plans for mergers and listings.

Goldman’s investment banking fees surged 42 per cent to US$2.66 billion in the quarter ended Sep 30 from a year ago. Analysts were expecting a 14.3 per cent increase, according to the average estimate compiled by LSEG.

A Goldman executive said the firm advised on US$1 trillion in announced mergers and acquisitions year to date, US$220 billion more than its next closest competitor.

It advised Electronic Arts on its US$55 billion sale to a consortium of private equity firms and Saudi Arabia’s Public Investment Fund this year, and also advised Holcim on the spinoff of its North American business Amrize, now valued at US$26 billion.

Goldman also advised Fifth Third Bancorp, which this month agreed to buy regional lender Comerica in a US$10.9 billion deal to create the ninth-largest US bank.

The growth was fuelled by a 60 per cent surge in advisory fees, while debt and equity underwriting fees also increased. Rival JPMorgan Chase also reported robust investment banking numbers.

Goldman shares fell 4.7 per cent in early trading as analysts said the trading business underperformed market expectations even though financing for that segment was strong. The shares have surged 37 per cent year to date as of Monday, reflecting the dealmaking rebound.

“This quarter’s results reflect the strength of our client franchise and focus on executing our strategic priorities in an improved market environment,” CEO David Solomon said in a statement.

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“We know that conditions can change quickly and so we remain focused on strong risk management,” he said, echoing cautious optimism from JPMorgan CEO Jamie Dimon.

Limited staff reduction, rolls out AI

Goldman separately informed employees of potential job cuts and hiring slowdown through the end of the year, according to an internal memo seen by Reuters, as the Wall Street giant aims to use artificial intelligence to enhance productivity.

It called the initiative “OneGS 3.0.”

“The rapidly accelerating advancements in AI can unlock significant productivity gains for us, and we are confident we can re-invest those gains to continue delivering world-class solutions for our clients,” the memo, signed by CEO Solomon, president John Waldron and CFO Denis Coleman.

A spokesman for the firm said the company still expects to finish with a net increase in overall headcount.

Improving regulatory environment

Solomon also told analysts that the regulatory environment is improving the firm’s competitive position significantly.

“We’re going to see a much more constructive Basel III endgame,” he said, referring to the final set of proposed bank capital rules.

Solomon said he expects relief in Supplementary Leverage Ratio by next summer, more transparency around Comprehensive Capital Analysis and Review, as well as rules for Global systemically important banks.

Global M&A volumes for the first nine months of the year crossed US$3.43 trillion, with nearly 48 per cent of it in the US, according to data from Dealogic. The period also saw the highest average M&A volume globally and in the US since 2015, in line with Solomon’s prediction at last year’s Reuters NEXT conference.

Goldman was among the joint book-running managers on marquee initial public offerings in the quarter, including design software firm Figma, Swedish fintech Klarna, and space tech firm Firefly Aerospace.

Goldman’s CFO Denis Coleman said the quarter-end deals backlog is at the highest levels in three years.

Overall quarterly profit was US$4.1 billion, or US$12.25 per share, exceeding Wall Street expectations of US$11 per share.

“The capital markets machine has clearly shifted into a higher gear, with robust stock prices, a reduced regulatory burden, and the prospect of lower interest rates likely to keep the momentum going,” said Stephen Biggar, a banking analyst at Argus Research.

Goldman executives have been increasingly optimistic about dealmaking in recent months, with Solomon saying in September it had one of its busiest weeks for IPOs in more than four years.

Asset and wealth management focus

Revenue from asset and wealth management rose 17 per cent to US$4.4 billion, marking the first quarterly jump this year for the segment. This reflected record-high management fees, as well as private banking and lending revenue.

The business is a key priority for Goldman as it seeks steadier revenue from fees, which offset the volatility in its advisory and trading businesses. Goldman said last month it would take a stake worth as much as US$1 billion in T. Rowe Price, as part of a partnership to tap the asset manager’s retirement money for alternative assets.

Assets under supervision climbed to US$3.45 trillion, boosting management fees by 12 per cent.

Goldman set aside US$339 million as provisions for credit losses, compared with US$397 million a year ago. The provisions were mainly related to its credit card portfolio.

Sustained trading resilience

Wall Street trading desks have reaped rewards from record volatility as clients rejig portfolios to keep pace with changes in President Donald Trump’s trade, foreign, and fiscal policies.

The third quarter, however, remained one of Wall Street’s calmest quarters in nearly six years as an interest-rate cut from the Federal Reserve and robust AI investment pushed major US stock indexes to record highs.

Still, Goldman’s equities trading revenue rose 7 per cent to US$3.74 billion, fuelled by higher revenue in financing, which offset lower revenue from cash equities.

Fixed income, currency and commodities hauled in US$3.47 billion, 17 per cent higher than a year ago. REUTERS