Investment banking giant Goldman Sachs pulled off a strong third quarter of 2020 profit with net earnings at $3.62 billion and net revenues at $10.78 billion.
The New York-headquartered bank’s net revenues were up for the third quarter ending September 30 or some 30% higher than the same period last year but 19% lower than the second quarter of 2020.
In a statement, the bank said the increase compared with the third quarter of 2019 reflected higher net revenues across all segments, including significant increases in Asset Management and Global Markets.
“Our ability to serve clients who are navigating a very uncertain environment drove strong performance across the franchise, building off a strong first half of the year. As our clients begin to emerge from the tough economy brought on by the pandemic, we are well-positioned to help them recover and grow, particularly given market share gains we’ve achieved this year,” said Goldman Sachs Chairman and CEO David Solomon.
Goldman Sachs is optimistic that the US economy will continue to grow by close to 6% next year following a 3.4% contraction this year.
The contraction was caused by disruptions in bank operations caused by the pandemic which according to Solomon has resulted in some employees working from home. He said 60 percent of the firm’s workers in Hong Kong and Tokyo are back in the office while half of the employees in Europe have returned to the office, according to a CNN report.
The bank’s chief executive said only 30% of its workers in the UK are back in the office while around 2,000 employees in the bank’s New York headquarters or 30% of the New York staff coming to work in the office on a rotating weekly basis.
Despite these setbacks, Goldman Sachs has been benefitting from the positive environment in the stock market since March with an annualized Return of Equity of 17.5%, the highest quarterly ROE since 2010.
Goldman Sachs shares up
Shares of the bank on Wednesday closed trade at $211.42 per share which meant it gained $0.61 on the day or 0.29% percent. GS stock has traded in the green in the past five days, with the highest price hit on Monday (October 12) when its stock price touched $214.89 or a rise of 2.04%.
The operating environment for the bank continued to recover from July to September from the impact of the COVID-19 pandemic which had affected many businesses in the first to the second quarter.
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In the third-quarter report, however, global economic activity significantly rebounded following a sharp decrease in the second quarter. Market volatility also declined modestly, and monetary and fiscal policy remained accommodative, the company’s statement added.
As a result, global equity prices increased and credit spreads tightened compared with the end of the second quarter of 2020.
Bank revenues by segment
Breaking down the bank’s earnings, Investment Banking generated quarterly net revenues of $1.97 billion, including the second-highest quarterly net revenues in equity underwriting.
The firm also ranked first worldwide on announced and completed mergers and acquisitions, worldwide equity and equity-related offerings, common stock offerings, and initial public offerings for the year-to-date.
The Global Markets sector, meanwhile, generated quarterly net revenues of $4.55 billion, reflecting continued strength in Fixed Income, Currency, and Commodities (FICC) and Equities. It reported 29% higher than the third quarter of 2019 and 37% lower than the second quarter of 2020.
Net revenues in FICC were $2.50 billion, 49% higher than the third quarter of 2019, due to significantly higher net revenues in FICC intermediation, reflecting significantly higher net revenues in interest rate products, mortgages, commodities, and credit products, while net revenues in currencies were essentially unchanged.
Net revenues in equities were at $2.05 billion, 10% higher than the third quarter of 2019, due to significantly higher net revenues in Equities intermediation.
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For Asset Management, it generated quarterly net revenues of $2.77 billion, reflecting strong performance in Equity investments. It is 71% higher than the third quarter of 2019 and 32% higher than in the second quarter of 2020.
The increase compared with the third quarter of 2019 reflected significantly higher net revenues in equity investments and lending and debt investments.
Consumer & Wealth Management generated quarterly net revenues of $1.49 billion, reflecting record net revenues in consumer banking and continued strength in wealth management.
Goldman Sachs also maintained a highly liquid balance sheet. Also, the standardized common equity tier 1 capital ratio increased 120 basis points during the quarter to 14.5%. This is 13% higher than the third quarter of 2019 and 10% higher than the second quarter of 2020.
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