At the 2024 Barclays Global Financial Services Conference, The Goldman Sachs Group, Inc.’s GS CEO, David Solomon, stated that the firm’s trading revenues will probably slide 10% in the third quarter of 2024. The decline will follow a very strong quarter for trading in the third quarter of 2023, when equities revenues jumped 8%.
This decline owed to a tough year-over-year comparison and difficult trading conditions in August for fixed-income markets.
Solomon also stated that investment banking (IB) continues to improve, even though activity from financial sponsors has not rebounded as much as expected. He added that the firm is hopeful that private equity-led deals will bounce back at the end of this year and in 2025.
At the same conference, Citigroup's C CFO, Mark Mason, stated that the company’s IB fees are anticipated to jump 20% in the third quarter of 2024 from the year-ago period. This is likely to be driven by upbeat activity across debt capital markets and mergers and acquisitions.
Other banks, including PNC Financial Services Group, Inc. PNC, also provided an update on their third-quarter outlook. PNC expects to post third-quarter net interest income at the high end of its 1-2% growth target announced in July.
GS’ Q3 Revenues to Hit by Unwinding of Consumer Business
At the conference, Soloman also highlighted Goldman's continuous efforts to narrow its focus on the consumer business. Soloman stated that by unloading Goldman's GM Card business, as well as a separate portfolio of loans, the bank would post a hit to revenues when it reports results next month.
He added, “The combination of those things this quarter will likely have an approximately $400 million pre-tax impact, largely showing up in revenues."
In late 2022, Goldman decided to refocus on its core strengths of IB and trading operations while scaling back its consumer banking footprint. In 2023, it sold substantially all of Marcus’s loan portfolio. Apart from these divestitures, the company is offloading its credit card program with General Motors. This is in line with its decision to focus on and grow core businesses where it has showcased encouraging results, given its strong leadership position, wide scale of operations and exceptional talent.
Though the company’s efforts to exit the consumer business are expected to have been impacted in the third quarter, the same is likely to generate a return over the long term.
Goldman’s Inorganic Efforts to Drive Growth
Goldman’s efforts to diversify its business mix toward more recurring revenues and durable earnings have led to various strategic acquisitions over the years. In 2022, the company acquired NN Investment and robo-advisor NextCapital.
These moves are aimed at bolstering international presence as well as wealth and asset management capabilities. These and other past acquisitions continue to help diversify the fee-revenue base and offer top-line stability for the company.
Also, the company plans to ramp up its lending services to private equity and asset managers and also intends to expand internationally. Goldman Sachs Asset Management, a unit of GS, intends to expand its private credit portfolio to $300 billion in five years from the current $130 billion. Once the company strengthens its operations in the United States, it plans to expand its lending business into Europe, the U.K. and Asia.
Hence, GS' efforts to refocus on core capital markets business and expansion in private credit lines provide a solid base for future growth.
Over the past six months, shares of GS have gained 28% compared with the industry’s growth of 10.5%.
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Currently, GS carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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