U.S. investment banking titan Goldman Sachs (NYSE: GS) is firing on all cylinders, solidifying the recovery that began in 2020 after 12 years of pain.
After peaking in October 2007 at $240, the company’s stock didn’t definitively break that level until December 2020. It has since soared to $809 as of Monday, with Goldman finally having put its ill-fated consumer banking foray in the rear-view mirror.
The 13-year dry spell came as the U.S. government tightened banking regulations after the 2008 financial crisis, restricting the risks Goldman could take in trading and investing. Lloyd Blankfein, Goldman’s CEO from 2006 to 2018, struggled to figure out how Goldman could thrive in the new banking era.
Goldman frequently reported weak quarterly numbers for trading, underperformed in gathering wealth management assets and even got involved with a scandal in which the Malaysian sovereign wealth fund 1MDB was embezzled.
To be fair, other major banks suffered after the financial crisis too. But as the widely-acknowledged leader of U.S. investment banks, Goldman’s performance stood out.
Consumer banking morass
One of the bank’s biggest mistakes may have been entering the world of consumer banking in 2016. It’s not easy to go from serving institutional customers to retail ones. And Goldman proved that by losing $3 billion on its consumer banking division between 2020 and early 2023.
Bank executives realized their mistake and began pulling back from consumer banking in 2022. Finally, Goldman took a $2.26 billion revenue markdown last year for selling its Apple Card loan portfolio to JPMorgan Chase (NYSE: JPM).
That’s the end of Goldman’s separate consumer banking business (individuals do have banking options in its wealth management group). And the decision likely didn’t come a moment too soon.
Now everything looks good for the bank, whose main units include:
Global banking and markets, which comprises investment banking and trading.
Asset and wealth management.
Goldman has taken advantage of a strong economy, falling interest rates and vibrant financial markets to boost its performance in those areas.
“Goldman is leaning into its role as a leading global investment bank, deepening its relationships with large clients and widening its base of recurring, fee-based revenue to help mitigate the cyclicality inherent in its core business lines,” wrote Sean Dunlop, an analyst at Morningstar.
Strong earnings
Looking at earnings, revenue totaled $58 billion last year, up 9% from 2024, even after the $2.3 billion hit last year for the Apple Card loan portfolio. Profit gained 20% to $17.18 billion.
Investment banking fees soared 21%; bond, currency and commodity trading revenue gained 9%; equity trading revenue climbed 23%; and asset and wealth management revenue gained 2%.
Goldman is legendary for its investment banking prowess. It has occupied the industry’s top volume spot for advising on mergers and acquisitions for more than 20 straight years. It has regained its footing in trading after losing its way under Blankfein after the financial crisis.
The paltry 2% gain in asset and wealth management stemmed from a 50% drop in Goldman’s own investments. That, in turn, reflected significantly lower gains from private equities and significantly lower interest income from debt investments due to a reduction in the balance sheet.
Dunlop likes the asset/wealth management business for its stable fees. But he doesn’t like Goldman’s proprietary investments. “They require significant capital allocation and are return-on-equity dilutive, although returns should improve as the monetization environment improves.” Overall, he forecasts Goldman’s ROE will average 15.7% over the next decade.
Lasting geopolitical instability could cause major problems for Goldman, like most other U.S. companies. But barring that, its future looks bright.
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