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Wall Street Posts a Strong Quarter, Powering Goldman Sachs Profit

Bank of America and Citigroup also show robust dealmaking gains

Updated ET

Goldman Sachs reported better-than-expected quarterly results Tuesday. Photo: Timothy Mulcare for WSJ

Goldman Sachs GS -0.07%decrease; red down pointing triangle reported a 45% increase in its third-quarter profit, a sign that lower interest rates, a stable economy and the bank’s work refocusing on Wall Street are paying off.

Across the big investment banks, results were better than expected Tuesday as executives said activity is picking up with clients eager to strike deals and trade. They said hopes are building that the economy has made it to a soft landing, which could create even better conditions in the coming months.

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Goldman’s profit rose to $2.99 billion and revenue rose 7% to $12.7 billion. 

Bank of America BAC 0.55%increase; green up pointing triangle and Citigroup C -5.11%decrease; red down pointing triangle also posted strong results from the Wall Street operations on Tuesday.

“We see significant pent-up demand from our clients,” said Goldman Chief Executive David Solomon on a conference call. “The beginning of the rate cut cycle has renewed optimism for a soft landing, which should spur increased economic activity.” 

There is more room for growth, Solomon signaled, pointing out that volumes for mergers remain below 10-year averages.

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Goldman has been undergoing a strategy shift, exiting consumer-lending after incurring billions of dollars in losses. The bank is instead refocusing on its core businesses of dealmaking and trading while growing its asset and wealth-management division. 

The Federal Reserve’s recent interest-rate cut is seen as a positive for dealmaking, helping awaken Wall Street from a long malaise caused by high interest rates. But total volumes aren’t at levels seen in 2021, when easy monetary policy led to a bumper year of mergers and capital markets activity.

The dynamics started to turn in banks’ favor earlier this year, and most analysts now expect that investment banks’ profits should rise. Lower rates can help motivate companies that have been on the sidelines to strike deals that previously seemed too expensive. That is especially the case for private-equity firms, which have historically accounted for a significant share of M&A.

Goldman’s investment banking revenue was $1.87 billion, up 20% from a year ago, led by big increases in debt and equity underwriting revenue. This marks the third consecutive quarter of year-over-year growth in investment banking fees following two years of mostly declines.

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Goldman wasn’t alone in posting big gains for dealmakers. JPMorgan Chase reported Friday its investment banking revenue jumped 31% from a year earlier to $2.27 billion. On Tuesday, Bank of America said its investment banking fees went up 15% to $1.44 billion while Citigroup’s rose 44% to $999 million.

The strongest gains came in debt underwriting. Many clients are taking advantage of a decline in rates to lock in lower interest rates on outstanding corporate debt. Goldman’s Chief Financial Officer Denis Coleman said the bank is also seeing increased demand for financing acquisitions, which he expects will continue as M&A activity grows.

Goldman is starting to see a new phase in capital markets activity as clients move away from “plain-vanilla” refinancing of existing debt at lower yields toward “more strategic” transactions from private-equity sponsors.

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Global M&A volume was roughly $909 billion in the third quarter, up from $744.6 billion a year prior and still way below $1.57 trillion in the third quarter of 2021, according to Dealogic. The volume for debt capital markets deals globally was up more than 40% from a year ago, to $2.17 trillion, according to Dealogic. 

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The increased optimism also helped spur trading from clients, bankers said.

Goldman’s trading revenue of $6.46 billion was up from $6.35 billion, helped by an increase in equities and lending to institutional clients.

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At Bank of America, trading revenue was up 12% as its markets team produced a big chunk of its total profit. At Citigroup, trading revenue was up with a big gain in equities but a decline in fixed-income revenue.

“Clients want to do more with us, and that’s true in investment banking and in sales and trading,” BofA’s CFO Alastair Borthwick said. 

Goldman’s earnings also got a lift from the bank’s increasing focus on gaining a greater share of its clients’ business and creating a stickier relationship with them. One area of the firm where this is playing out is in lending to institutional clients.

Goldman has been pushing into this type of lending in its trading arm in search of more predictable revenue. Its so-called FICC financing group reported record revenue of $949 million in the third quarter, up 30% from a year prior.

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Revenue in asset and wealth management, a key division that Goldman is relying on to diversify its results, increased 16% to $3.75 billion. The business mostly manages investments for large institutional clients and very wealthy individuals. 

Management and other fees from asset and wealth management increased 9% from a year earlier to a record $2.62 billion.

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As part of its yearslong overhaul of this division, Goldman has been focused on generating a steady stream of fees off managing client investments and money. Goldman wants those fees to help offset lulls in investment banking and trading.

Goldman continues to face several headwinds. The bank is incurring steep losses as it exits its failed foray into consumer lending. Goldman is ending its credit-card partnership with General Motors, which is moving its business to Barclays, a deal the companies announced on Monday. 

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On Tuesday, Goldman disclosed a $415 million pretax hit in the quarter from its consumer-lending business.

The last major remaining piece of Goldman’s consumer-lending business is its Apple partnership, where credit-card balances total around $17 billion. Goldman could be facing a bigger loss when it sells this credit-card program to a new issuer than the GM deal.

Alexander Saeedy contributed to this article.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com

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Appeared in the October 16, 2024, print edition as 'Goldman’s Profit Surges 45% As Wall Street Activity Picks Up'.