Goldman Sachs cashes in on M&A wave to cap stellar quarter for U.S. banks

A view of the Goldman Sachs stall on the floor of the New York Stock Exchange July 16, 2013. REUTERS/Brendan McDermid

Oct 15 (Reuters) – Goldman Sachs Group Inc (GS.N) on Friday reported a 66% surge in third-quarter profit that swept past expectations, as Wall Street’s biggest investment bank rode a record wave of M&A activity and capped a strong quarter for U.S. banks.

Global M&A volumes have shattered all-time records, as deals worth over $1.5 trillion were signed by the world’s biggest investment banks in the third quarter, as per Refinitiv data.

Goldman comfortably held its top ranking on the league tables for worldwide M&A advisory, according to Refinitiv. The tables rank financial services firms on the amount of M&A fees they generate.

It helped the bank report net earnings applicable to common shareholders rose to $5.28 billion in the quarter ended Sept. 30, from $3.23 billion a year ago.

Earnings per share rose to $14.93 from $8.98 a year earlier. Analysts on average had expected a profit of $10.18 per share, according to the IBES estimate from Refinitiv.

Overall financial advisory revenue jumped 225% to $1.65 billion, while underwriting revenue surged 33% to $1.90 billion.

Goldman’s investment bank had its second best quarter ever, with revenue of $3.70 billion, driven by strength in advisory and underwriting fees.

Rival bank Morgan Stanley (MS.N) reported on Thursday its profit rose 38% to $3.58 billion, while JPMorgan Chase & Co (JPM.N) reported a 24% rise to $11.7 billion. read more Both banks handily beat estimates.

Goldman’s global markets business, which now houses the trading business and accounts for roughly 41% of overall revenue, reported revenue of $5.61 billion, up 23%.

With dealmakers drowning in a flurry of deals, Goldman also cashed in big-time as companies rushed to raise capital, refinance debt and sell new stock.

The bank’s equity trading revenue more than doubled from last year to $3.1 billion. That was also above rival Morgan Stanley, which reported trading revenue of $2.87 billion and is typically no. 1 in this line of business.

Unlike its bigger rivals JPMorgan (JPM.N) and Citigroup (C.N), which have sizable consumer banks, Goldman is heavily reliant on its investment banking and trading business.

CONSUMER BUSINESS

The consumer business though small, has been key to its diversification strategy. It helped limit the bank’s exposure to loan defaults and allowed it to focus on investment banking.

Net revenue in Goldman’s consumer banking unit rose 17% to $382 million, reflecting higher credit card and deposit balances.

Loan growth, however, has remained mixed for big U.S. banks. JPMorgan said on Wednesday that loans were up 5% across the bank compared with last year, while Citi was broadly flat. read more

Bank of America (BAC.N) and Wells Fargo (WFC.N) reported declines in loan growth year-on-year.

But as part of Chief Executive David Solomon’s strategy to build alternative revenue streams, Goldman is now doubling down on Marcus, its consumer bank.

Since taking over from Lloyd Blankfein in 2018, Solomon has looked to diversify the bank’s revenue, with more focus on consumer banking, mass-market wealth management and cash management.

Total revenue surged 26% to $13.61 billion in the quarter, handily beating estimates.

Shares of Goldman Sachs were up nearly 2% in early trading.

Reporting by Noor Zainab Hussain and Anirban Sen in Bengaluru, Elizabeth Dilts and Matt Scuffham in New York; Editing by Arun Koyyur

Our Standards: The Thomson Reuters Trust Principles.

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