On Oct. 18, Goldman Sachs (GS) reported third-quarter results that beat Wall Street analysts' forecasts. At the same time, Goldman Sachs also laid out one of the "largest organizational changes in history", with plans to reorganize the business into three separate units.

According to foreign media reports, Goldman Sachs plans to merge investment banking and trading operations into one unit, asset management and wealth management into a second unit, while integrating transaction banking, banking technology platforms and other businesses in a third unit.

So far, including Goldman Sachs, Morgan Stanley, jpmorgan Chase, Citibank, Wells Fargo and other major Wall Street giants have disclosed financial results. Affected by the market, the third quarter performance of these big banks has declined compared with the same period last year, especially the decline in investment banking. However, in the context of the Federal Reserve's interest rate hike and rising interest rates, net interest income has become a bright spot in the three quarterly results of major Wall Street banks.

Goldman Sachs reports third-quarter results

On October 18, Goldman Sachs announced its financial results for the third quarter of 2022. Goldman's net revenue for the third quarter was $11.98 billion, down 12% from a year ago and beating market expectations of $11.43 billion. Quarterly net profit was $3.069 billion, down 43% from a year earlier.

In the first three quarters of 2022, Goldman Sachs reported net revenue of $36.77 billion and net income of $9.94 billion.

In the third quarter of this year, Goldman Sachs diluted earnings per share (EPS) was $8.25, compared with $14.93 in the third quarter of 2021, but still well above the Wall Street consensus of $7.69; Goldman earned $26.71 per share in the first nine months of the year, compared with $48.59 in the first three quarters of 2021.

The financial performance was slightly better than the consensus expectations of Wall Street analysts. After the earnings report, Goldman Sachs (GS) rose more than 5 percent after the opening bell on Tuesday.

By business unit, net revenue in Goldman's consumer and wealth management division rose 18 per cent year on year. Among them, wealth management net income of $1.217 billion, basically flat; Private banking and lending net income of $395 million, up 35% year-over-year, reflecting increased loan and deposit balances Consumer banking net income of $744 million, up 95% year-over-year; Mainly due to a large increase in credit card balances and an increase in deposit spreads.

Notably, Goldman's third-quarter investment banking revenues fell 57 per cent from a year earlier to $1.58bn, but that was partly offset by a big increase in global markets revenues, which rose 10.5 per cent to $6.2bn. At Goldman, net income from asset management fell 20 per cent year on year.

The Board of Directors of Goldman Sachs Group Inc. declared a dividend of $2.50 per share to be paid on December 29, 2022, to common shareholders of record on December 1, 2022.

Along with the earnings release, Goldman also unveiled a restructuring plan to reorganize its business into three units.

Goldman Sachs Chairman and CEO David Solomon said in the earnings release: "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 efficiencies while delivering higher, more durable returns."

David Solomon further said in the earnings release: "Today, we enter the next phase of our growth, restructuring our business that will allow us to further leverage our 'One Goldman Sachs' primary operating model to better serve our clients."

It is reported that before the announcement of Goldman Sachs earnings on Tuesday, many foreign media had reported on the restructuring and called it "the largest restructuring in the history of Goldman Sachs."

Earlier, the Wall Street Journal, citing people familiar with the matter, reported that Goldman plans to combine its investment banking and trading operations into a single unit. The asset management and wealth management businesses will be combined into one unit, and Marcus, Goldman's consumer lending platform, will be merged into a second unit as part of the Asset and wealth management unit.

The third unit will integrate transaction banking, the bank's fintech platform, specialist lender 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.

Along with the organizational changes, Goldman's management may also change accordingly. The Wall Street Journal reported that Marc Nachmann, global co-head of Goldman's global markets group, may be reassigned to help Goldman run the combined asset and wealth management unit. According to a previous Bloomberg report, the combined investment banking and trading division may be headed by Dan Dees and Jim Esposito and Ashok Varadhan, who are currently global co-heads of Goldman's investment banking business. Mr Varadhan is co-head of global markets at Goldman Sachs.

According to the Wall Street Journal, after the structural adjustment, Goldman Sachs 'organizational structure or will be closer to Morgan Stanley, jpmorgan Chase and other peers. Goldman CEO David Solomon is trying to shift the focus to businesses that can generate stable revenue in any environment. In recent decades, Goldman's trading and investment banking acumen has been its calling card, contributing to huge profits. But from an investor perspective, investors are concerned that it will be difficult to sustain these business successes when market conditions change.

oldman's share price has struggled to keep pace with its rivals. As of June, Goldman was trading at about 0.9 times book value, according to FactSet data. That compares with 1.4 times for Morgan Stanley and 1.3 times for jpmorgan Chase.

Goldman has been trying to close the gap with its peers by strengthening businesses that have been given higher valuations by the market. For example, money management for the wealthy, pension services and institutional money management are more profitable than other financial services and often pose no risk to a company's balance sheet. At the same time, Goldman has invested heavily in consumer banking, where traditional banking -- taking deposits and making loans -- is more predictable for investors.

So far, including Goldman Sachs, Morgan Stanley, jpmorgan Chase, Citibank, Wells Fargo and other major Wall Street giants of the third quarter financial situation has been disclosed.

Overall, despite the continued impact of market uncertainty in the second half of this year, Wall Street stocks and bonds doubled, and the performance of big banks on Wall Street declined compared with the same period last year. However, in the context of the Federal Reserve's interest rate hike and rising interest rates, net interest income has become a bright spot in the three quarterly results of major Wall Street banks, and many large banks have exceeded market expectations.

Specifically, jpmorgan Chase had the best third quarter. Jpmorgan posted adjusted revenue of $33.49 billion in the third quarter, slightly better than analysts' estimates of $32.35 billion. Net income fell 16.7 per cent to $9.74bn from $11.19bn a year earlier. Earnings per share were $3.12, also above analysts' consensus range of $2.88 to $2.92.

By segment, jpmorgan's consumer and community banking revenue was $14.3 billion, up 14% from a year ago. Corporate and investment banking revenue of $11.9 billion, down 4% year-over-year; Commercial banking revenue of $3.05 billion, up 21% year-over-year; Asset and wealth management revenue was $4.54 billion, up 6 percent year over year.

Also beating expectations was Wells Fargo, which reported adjusted revenue of $19.15 billion in the third quarter, up 3.56% from the same period last year and above market expectations of $18.751 billion. In addition, Citi's third-quarter revenue of $18.51 billion, up 6% from the same period last year.

Morgan Stanley missed estimates. Morgan Stanley reported net revenues of $12.99bn in the third quarter, down about 12 per cent from a year earlier. Net income was $2.63 billion, down about 29 percent from a year ago, and diluted earnings per share was $1.47. By business unit, Morgan Stanley's wealth under management grew by $65bn in the third quarter, with fixed income one of the few areas of the firm to show significant growth, while investment banking and equities shrank again.

It is worth mentioning that in the third quarter of this year, the collective "cold wave" of Wall Street's big bank investment banking business. Among them, Morgan Stanley's investment banking business plunged 55% from the same period last year to $1.28 billion, and Citi's investment banking revenue plunged 64% to $630 million.

Morgan Stanley Chief Executive James P. Gorman said on a conference call that the bank's investment banking business had deteriorated as a slowdown in global trading weighed on the investment bank's core underwriting business. He expects the outlook for investment banking deals to continue to deteriorate this year as the Federal Reserve continues to raise interest rates to curb inflation expectations, the outlook for economic growth is clouded, and investor sentiment is affected by financial market volatility triggered by geopolitical crises.

Article source: Brokerage China