Profits leap at Goldman Sachs as banks see steady economy

Goldman Sachs on Tuesday reported a monster jump in its third quarter earnings, reaping $3 billion in profits — far higher than what Wall Street analysts had expected.

How did the investment bank do it? The steadying economic environment helped — but so did a financial maneuver employed by Goldman CEO David Solomon a few weeks ago.

In early September, Solomon publicly sounded the alarm, saying many aspects of the bank’s business were stumbling in the third quarter. He warned that the bank’s upcoming earnings might disappoint.

They didn’t — not at Goldman nor the two other major banks that reported results Tuesday.

Up first, a billion-dollar beat

Goldman pulled in nearly $13 billion in revenue during the third quarter, over $1 billion more than projections.

The bank’s $3 billion in quarterly profit was roughly equal to what it pulled in during the previous quarter, despite Solomon’s warning last month that profits might not hold up as well as they had in the first half of the year.

A bank executive, briefing reporters on the condition of anonymity, said that trading activity — a core part of any investment bank — came in stronger than expected in September, the same period that the Federal Reserve announced a large cut in interest rates.

It’s been an insipid year for mergers and acquisitions, which Goldman and other investment banks rely on to collect fees for helping to arrange the tie-ups. That said, the Goldman executive reflected a degree of optimism, saying “the world is trending to above average,” economically speaking.

Those mixed feelings were shared by its rival JPMorgan Chase last week, when it reported bumper financial results but flagged a litany of potential problem spots ahead.

A brief interlude about the election

Goldman executives used to be so omnipresent in government administrations, of both parties, that onlookers coined the phrase “Government Sachs.” This year, the bank has taken pains to avoid weighing in on the presidential race.

Alarm bells rang in Goldman’s executive suites in New York after Vice President Kamala Harris said that the bank’s research indicated that her economic proposals would help the economy, while former President Donald Trump’s plans would hurt it.

That wasn’t entirely true: The bank’s research said Harris’ plans would help more than Trump’s, but that his were not a net negative. Tony Fratto, a Goldman spokesperson, said last week that “the analysis showed relatively small impacts — a few tenths of a percent faster growth from Harris’ proposals,” while noting uncertainty around what either candidate would carry out in the end.

In credit cards, a return to normal programming

The Goldman Sachs equivalent of a rerun is the bank’s slow extrication from its consumer bank ambitions. This week, the bank finally sold its GM-branded credit cards to Barclays, and it has said it intends to exit its Apple-branded cards, too, though it declined to offer an update Tuesday.

The bank set aside $397 million for credit losses last quarter, a sharp increase from the previous quarter and the same period last year, an indication of continued pain in the business.

And now, a word from Bank of America and Citi

Bank of America separately reported its latest earnings Tuesday, and in keeping with theme it beat analyst forecasts. Although its profit in the third quarter fell more than 10% from the same period last year, the decline was not as steep as expected, bolstered by a jump in trading revenue and investment-banking fees.

Citi’s earnings, also released Tuesday, featured a smaller-than-expected drop in profit but a hefty provision to cover future credit-card losses. The report showed that the bank was “moving in the right direction and that our strategy is gaining traction,” CEO Jane Fraser said in a statement.