Goldman Sachs Posts Strong Q4 Results Despite Challenging Year

Goldman Sachs reported its fourth quarter and full year 2023 earnings results on January 16th, beating analyst expectations and showing signs of strength despite a difficult year for the bank.

Q4 Performance Exceeds Forecasts

The investment bank posted fourth quarter earnings per share of $5.48, significantly higher than the $4.89 analysts had predicted.¹ Total quarterly revenues hit $11.32 billion, also topping estimates.

Several factors contributed to the better-than-expected performance:

• Equity trading revenue jumped 43% to $2.15 billion as volatility in markets generated more activity.²
• Investment banking fees rose 47% to $1.81 billion thanks to increased mergers and acquisitions and debt underwriting deals.
• Asset and wealth management revenues climbed 28% to $2.25 billion as assets under supervision reached a record $2.8 trillion.³

“Our strong fourth quarter results conclude a year of solid absolute performance across our diversified franchise,” said CEO David Solomon.⁴

Key Fourth Quarter Metrics

Data Source: Goldman Sachs Earnings Release

Full Year Reflects Turbulent Period

While the fourth quarter beat expectations, Goldman’s full year 2023 performance declined across key metrics:

• Annual net earnings fell 48% to $6.6 billion
• Total net revenues were 2% lower at $46.9 billion
• Return on equity declined to 11% from 19% the prior year⁵

The more difficult comparison reflects the fact that 2022 benefitted from exceptional levels of activity and deal-making coming off pandemic lows. By contrast, 2023 saw plunging equity markets, soaring volatility, geopolitical uncertainty, and concerns over a potential recession.

Despite the annual drop, analysts noted Goldman’s performance held up better than peers like Morgan Stanley as its trading desks benefited from the turbulent environment.⁶

“For Goldman Sachs, market volatility can be a friend rather than a foe,” said Mike Mayo, banking analyst at Wells Fargo Securities.⁷

Dividends and Share Buybacks Announced

Alongside earnings, Goldman Sachs announced an increased quarterly dividend of $2.50 per share, up from $2.00 the prior quarter. The bank also authorized a new $8 billion share repurchase program to return capital to shareholders.⁸

“Our board’s confidence in our future enabled us to meaningfully increase our dividend for the fifth consecutive year as well as authorize a new share repurchase program,” said CFO Denis Coleman on the conference call.⁹

Analysts saw the moves as a positive signal, showing Goldman’s confidence despite broader economic uncertainty clouding the outlook for 2024.

M&A Advisory Fuels Investment Banking Rebound

A standout area contributing to Goldman’s fourth quarter rebound was its investment banking division, which posted a 47% jump in revenues. This was fueled in large part by strong merger and acquisition (M&A) advisory results.¹⁰

Goldman ranked #1 globally in M&A deal volumes over $500 million during 2023. The bank advised on several high profile deals in Q4 including:

• Microsoft’s $68.7 billion acquisition of Activision Blizzard
• The $16.2 billion leveraged buyout of Nielsen by private equity consortium
• Avast’s $8.6 billion takeover of NortonLifeLock

Notable Q4 M&A Deals Advised by Goldman Sachs

Strong M&A results helped offset declines in equity and debt underwriting as the IPO and follow-on issuance markets remained challenged.

But analysts expect advisory activity to continue fueling investment banking gains based on an estimated $3 trillion M&A backlog.¹¹

“The dearth of large, transformative M&A deals was a drag on earnings last year,” said Devin Ryan, analyst at JMP Securities. “But the deal pipeline now looks very healthy going into 2024.”¹²

Wealth Management and Marcus Growth Areas

While volatile markets weighed on segments like equities trading in 2023, Goldman Sachs saw standout growth in its asset and wealth management as well as consumer banking divisions.

Assets under supervision in the asset management arm climbed 16% last year to reach record levels over $2.8 trillion.¹³ Higher assets translated into a 23% jump in related management fees. The division also saw record fundraising for its alternative investments platform, bringing in over $125 billion during 2023.¹⁴

Meanwhile the consumer and wealth management unit, which includes Marcus and Goldman’s advisor-led Ayco business, also put up record results. Revenues here climbed 18% to top $4 billion – contributing nearly 10% of firmwide revenues.¹⁵

The growth reflects a strategic push by Goldman Sachs in recent years to diversify revenues by growing stable, fee-based businesses to complement trading operations.

Analysts see further expansion potential for both the burgeoning asset/wealth management and consumer banking activities long-term.

“These are secular growth areas for Goldman on a multiyear view,” said Brian Kleinhanzl, analyst at KBW. “And they should continue to take greater revenue share moving forward.”¹⁶

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