top of page

Wall Street Banks Q3 Earnings Takeaway: Goldman Sachs, Citigroup, and More

Updated: Nov 4, 2024

With the Q3 earnings reports in, Wall Street buzzes with notable performances among the biggest financial institutions. Goldman Sachs and Citigroup are key players this quarter in earnings season, turning in diverging performances. While Goldman Sachs has been crushing it on investment banking revenues and wealth management, Citigroup was dealt a blow from rising loan loss reserves and softer retail banking performance.


Wall Street Banks Q3 Earnings: Key Insights from Goldman Sachs, Citigroup, and More

Key Takeaways:

  • Goldman Sachs announced a 45% rise in its profits, on the back of a rebound in investment banking and wealth management revenues.

  • Citigroup still did poorly, with a net income fall of 9%, weighed down by higher provisions against loan losses and difficulties in its credit-card business.

  • Investment banking has been one of the bright spots at both banks, as low interest rates spur the market for deal making.

  • The banking sector has continued to confront nearly relentless turmoil due to increased regulatory scrutiny and deepening concerns over loan defaults.


Banks' Q3 Earnings: Goldman Sachs Shines Amid Investment Banking Revival


Goldman Sachs posted strong earnings for the third quarter, with a 45% increase in profits. The firm's net income climbed to $3 billion from $2 billion in the comparable 2023 quarter, reflecting a partial rebound in investment banking. Total revenue at Goldman grew 7% YoY to $12.7 billion, topping analyst estimates.


Goldman Sachs has conventionally been solid in investment banking, and this set of results did not differ. The division saw its investment banking fees grow 20% year-on-year, particularly in debt and equity underwriting. With the Federal Reserve having just started to lower interest rates, more firms were issuing debt and equity, perking up the pace of dealmaking to Goldman Sachs' benefit. Advisory revenues showed flickers of growth as mergers and acquisitions began to come out of their long swoon.


Meanwhile, asset and wealth management gained a big chunk of Goldman's revenues by growing 16% year-over-year, reflecting the company's strategies to focus on its core competencies after certain sets of challenges in its consumer banking segment. Goldman has been steadily dialing down its consumer lending-a strategic retreat aimed at re-centering the bank around its core strengths in investment banking, trading, and wealth management.



The negative news was that Goldman's FICC division revenue fell 12% year-on-year, caused by weaker performance in commodities and interest rate products. That setback did not stop Goldman from placing itself among Wall Street's biggest winners for the third quarter; shares surged more than 3% in pre-market trading. The bank's stock has gained 28% year-to-date, outperforming many of its peers in the financial sector.


Citigroup's Bottom Line Hurt by Loan Loss Provisions, Retail Banking


While Goldman Sachs celebrated a successful quarter, Citigroup struggled through a more difficult third quarter. Net income at Citigroup fell 9% to $3.2 billion from $3.5 billion in the same period a year ago. The bank's results were weighed down by an increase in its provision for credit losses, notably in the credit-card business-a reflection of concern that people might not pay back loans.


Citigroup reserved $22.1 billion for loan loss provisions at the end of the quarter, up from $20.2 billion a year earlier. The added reserves underpin a conservative position the bank is taking on rising concerns about credit card borrowers' ability to pay. With economic conditions still so fluid, Citigroup is preparing for potential defaults, especially in its U.S. retail banking, where revenue from credit cards rose 8% during Q3.



In addition, Citigroup’s wealth management arm, a central part of CEO Jane Fraser’s growth strategy, posted a 9% increase in revenue to $2 billion, providing a key proof point that the bank is moving in the right direction despite regulatory hurdles. Fraser has been pushing to simplify Citigroup’s structure while growing its wealth management business, an area where it aims to compete more aggressively with Goldman Sachs and other Wall Street giants.


Meanwhile, Citigroup's wealth management arm, an integral unit within the growth plan of its chief executive Jane Fraser, has grown 9% in revenue to $2 billion for proof that the bank is

getting it right irrespective of regulatory obstacles. In the meantime, Ms. Fraser has been working hard in streamlining Citigroup while adding scale to its wealth management sector, an area in which it wants to be much more competitive with Goldman Sachs and other Wall Street behemoths.


Citigroup's retail services were mixed. Credit card partnership revenues declined 1%, while equities trading jumped 32% year-over-year on the strong performance of the stock market at the end of the quarter.


Citigroup still faces a more ominous cloud of regulatory scrutiny. The bank has been attempting for years to rectify persistently poor risk management and data governance, areas in which it was fined by regulators in recent times. While Citigroup has done some things to try and live under the compliance requirements of the Federal Reserve and other regulators, the challenges were still high in several ways.



Broader Banking Industry: Mixed Results and Outlook

The divergence story of Goldman versus Citi also rhymes with broader trends unfolding in the Q3 banking industry: improving investment banking revenues are reflecting falling interest rates, as companies seem in a rush to seize on lower borrowing costs in order to raise capital. In fact, this has been a big theme for other large banks too. To that end, investment banking fees at Bank of America rose 18%, while JPMorgan Chase and Wells Fargo posted similar striking gains in that metric.


Still, the banks remain under pressure, especially on consumer lending and credit card fronts. Grapple with the growing loan default concerns and the banks are making more provisions for credit losses, as Citigroup did. But also, there is the regulatory pressure that keeps haunting the sector, where banks are trying to meet compliance issues coupled with checking the profitability aspect.


In the future, companies like Goldman Sachs and Citigroup will continue to focus on their core businesses. For Goldman, that means a refocused emphasis on investment banking, asset management, and wealth management-sectors in which it has long performed extremely well. Citigroup will focus on simplifying its operations, expanding its wealth management arm, and getting through the new set of regulations.



Comments


Market Alleys
Market Alleys
bottom of page