Goldman Sachs boosted by surging markets in third quarter

Trading bonanza helps push Wall Street bank’s profitability to highest level in decade

Goldman Sachs headquarters in New York. Analysts said it was too soon to declare victory on the company’s strategic transformation. Photograph: AFP via Getty

Goldman Sachs headquarters in New York. Analysts said it was too soon to declare victory on the company’s strategic transformation. Photograph: AFP via Getty

 

Booming markets drove a surge in third-quarter earnings at Goldman Sachs’s trading and asset management businesses, helping the Wall Street bank to post its strongest profitability since 2010.

Goldman delivered an annualised return on equity of 17.5 per cent for the three months to the end of September, its highest quarterly return in a decade.

It far exceeded the “greater than 13 per cent” promised in January, when chief executive David Solomon laid out his plans to revive the 150-year-old bank’s fortunes by cutting costs and branching into new businesses such as online banking and cash management.

“We put out a plan and we believe we’re executing,” Mr Solomon told analysts as he revealed a near-doubling of Goldman’s third-quarter net income to $3.6 billion (€3.06 billion). “We feel good as a leadership team as to how we’re progressing, but there’s more work to do.”

Revenues from Goldman’s fixed-income division, where investors have spent years pressing for cuts, were up 49 per cent to $2.5 billion compared with a year earlier – the biggest rise of the four Wall Street banks to have reported third-quarter earnings so far.

Asset management

Goldman’s asset management division increased quarterly revenues by 71 per cent, to just under $2.8 billion, fuelled by a 139 per cent increase in the value of its equities holdings, as stock markets soared this summer.

Despite the increase in profitability, shares were flat by mid-morning. Analysts said it was too soon to declare victory on the company’s strategic transformation.

“You can’t annualise any quarter at Goldman because there’s too many components that are so volatile,” said Brennan Hawken, an analyst at UBS. He added that the US bank’s return on equity for the first nine months of the year was running at an annualised rate of just 8 per cent after big charges in the first two quarters.

Still, he commended Goldman for containing expenses in a “robust revenue environment”. Mr Solomon said that Goldman remained committed to delivering the $1.3 billion in cost cuts it has pledged over three years; chief financial officer Stephen Scherr said it would “look at opportunities to go further”. – Copyright The Financial Times Limited 2020