15 Oct

Goldman Sachs: Higher Provisions Hurt Its Q3 Earnings

WRITTEN BY Amit Singh
  • Goldman Sachs posted mixed third-quarter results.
  • The revenues were marginally ahead of analysts’ consensus estimate. However, the EPS didn’t meet the consensus estimate.

Goldman Sachs (GS) shares were trading more than 3% lower this morning. The company’s third-quarter EPS miss didn’t sit well with investors. Goldman Sachs reported mixed third-quarter results. The bank’s revenues and EPS continued to decline. The top line was slightly above analysts’ estimate. However, a double-digit decline in investment banking revenues remained a drag.

What hurt Goldman Sachs’s earnings?

Overall, lower revenues dragged the company’s third-quarter earnings down. Goldman Sachs’s earnings missed analysts’ estimates and fell 24% YoY (year-over-year). Higher provisions took a toll on the company’s bottom line. Notably, Goldman Sachs’s provision for credit losses rose 67% YoY, which reflected higher impairments.

In comparison, higher investment banking revenues supported Citigroup (C) and JPMorgan Chase’s (JPM) top line. Citigroup’s investment banking revenues in the Institutional Clients Group segment rose 4% YoY. Meanwhile, JPMorgan Chase’s investment banking revenues increased 8% YoY.

Citigroup beat analysts’ estimates in the third quarter. The company’s EPS of $2.07 rose 20% YoY and beat analysts’ estimate of $1.95. The accelerated share repurchases and a 10% drop in the effective tax rate drove Citigroup’s third-quarter EPS.

Likewise, JPMorgan Chase beat analysts’ third-quarter estimates. The company’s third-quarter revenues of $30.1 billion increased 8% YoY and beat analysts’ consensus estimate of $28.5 billion. JPMorgan Chase’s EPS rose 15% YoY to $2.68 and beat analysts’ estimate of $2.45 by a wide margin.

Goldman Sachs’ third-quarter results

Goldman Sachs posted net revenues of $8.32 billion—down 6% on a YoY basis. A decrease in the Investment Banking segment and the Investing & Lending business dragged the company’s revenues down. However, the top line was slightly above the consensus estimate of $8.31 billion.

The revenues in the Investment Banking segment fell 15% YoY, which reflected a 22% decline in financial advisory revenues. Also, a reduction in completed merger and acquisition transactions dragged the financial advisory revenues down. Within the investment banking segment, underwriting net revenues fell 9% due to lower IPOs and a decrease in leveraged finance transactions.

The net revenues in Goldman Sachs’s Institutional Client Services segment rose 6% YoY to $3.29 billion. Meanwhile, higher commissions and fees in the equities and growth in market-related products in the FICC division drove the top line.

The Investing & Lending segment’s net revenues fell 17% YoY, which reflected lower gains from its investments in private equities. However, losses from investments in public equities remained a drag.

The net revenues in the Investment Management segment fell 2% YoY, which reflected a considerable drop in incentive fees.

The provisions for credit losses were $291 million—up 67% YoY. Notably, a significant increase reflects higher impairments.

Goldman Sachs posted an EPS of $4.79, which was below analysts’ consensus estimate of $4.81 and declined 24% YoY. Overall, lower revenues and higher provisions had a negative impact on the company’s third-quarter earnings.

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