Goldman Sachs Beat Expectations, But It’s Still Trailing The Top Spot

Goldman Sachs Beat Expectations, But It’s Still Trailing The Top Spot
Paul Allison, CFA

about 2 months ago2 mins

What’s going on here?

Goldman Sachs reported better-than-expected results on Tuesday, but the big bank’s still far off the top spot.

What does this mean?

Goldman makes most of its money by taking commissions on its clients’ trades and charging hefty fees from investment banking deals. But that only works if clients are trading and deals are being made, and right now, there isn’t much to keep the big bank busy. That’s partly why Goldman’s stock price has underperformed JPMorgan and Morgan Stanley this year. Although in fairness, while Goldman’s third-quarter profit still landed a third lower than the same time last year, revenue in the big bank’s stock trading department was up 8%. That’s a small sign of energy after two years of lackluster stock performance – and the CEO thinks that’s just the start, expecting a “continued recovery if conditions remain conducive”. That’s a big “if”, mind you.

Goldman trading revenue
Source: Goldman Sachs

Why should I care?

Zooming out: Time to count on your laurels.

Goldman’s forecast to wrangle around $46 billion in revenue this year, which will have barely budged from the bank’s best pre-financial crisis results a whole 16 years ago. That’s not a result of laziness, though: the institution’s been hunting for money-making opportunities for a while, but it’s slim pickings out there. So for now, investors will be watching to see if Goldman’s expertise in trading and investment banking will be enough to pay dividends, metaphorically and literally speaking.

The bigger picture: Jack of all trades, master of some.

JPMorgan, on the other hand, is spinning plates, and the extra coordination is really coming in handy. The big bank’s cacophony of money-making routes means that if, say, corporate dealmaking drops off, another department – think trading, consumer lending, or wealth management – can pick up the slack. No wonder, then, that JPMorgan’s earnings have almost tripled over the last 16 years while Goldman’s have stood still.

Goldman vs JPMorgan stock
Source: Google Finance


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