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Goldman Sachs’s Investing and Lending: What It’s Riding On

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Feb. 19 2018, Updated 9:01 a.m. ET

Investing and lending segment

Goldman Sachs’s (GS) investing and lending segment produced revenues of $1.7 billion in 4Q17, a 12% rise from 4Q16 and 12% lower than 3Q16. Equities securities generated revenues of $1.2 billion. The rise was due to improved corporate performance and gains in public equity investments.

Revenues from debt securities and loans were $449 million, which was largely driven by $500 million in net interest income. That was offset by higher loan loss provisions, which primarily reflected an impairment of a secured loan of ~$130 million.

The investing and lending balance sheet ended 4Q17 at $120 billion, which was 4% higher than 3Q17. It was driven mainly by real estate, private wealth, and consumer loans.

GS consolidated its online platform under the Marcus brand, originated $2.3 billion of unsecured consumer loans, and grew online deposits to more than $5 billion.

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Outlook for 2018

Equity investing is a key factor for Goldman Sachs. It contributes significantly to book value per share and returns through the cycle. With respect to debt investing and lending, the recent expansion of lending activities positions the firm with $2 billion of run rate net interest income in 2018.

Interest rate hikes

The Fed has been increasing interest rates since December 2015, with a current rate of 1.5%. The Fed expects to raise interest rates three or four times in 2018. These rate hikes have helped banks (IYF) improve their net interest margins in 2017 and could continue to do so in 2018.

Among Goldman Sachs’s competitors, Wells Fargo has the highest net interest margin at 2.9% compared to JPMorgan Chase (JPM), Morgan Stanley (MS), and Bank of America (BAC).

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