Wall Street is showing signs of recovery as key financial institutions, led by Goldman Sachs, reported stronger-than-expected results driven by a gradual rebound in mergers and acquisitions.
Goldman Sachs, under the leadership of CEO David Solomon, posted a 45% increase in quarterly profits, outperforming Bank of America and Citigroup, both of which also delivered positive earnings surprises.
While initial public offerings (IPOs) and merger activity remain subdued compared to the surge seen in 2021, banking executives are expressing cautious optimism following the Federal Reserve’s decision last month to cut interest rates by half a percentage point. “We see significant pent-up demand from our clients,” Solomon said on a recent earnings call, adding that the start of the rate cut cycle has revived confidence in a potential soft landing for the economy.
Goldman Sachs reported a 20% rise in investment banking fees, reaching $1.87 billion. The increase contributed to third-quarter profits of $2.99 billion, or $8.40 per share, up from $2.06 billion, or $5.47 per share, a year earlier. Revenues also rose 7%, totaling $12.7 billion, beating analysts’ expectations of $11.8 billion in revenues and $6.89 per share in earnings, according to estimates from the London Stock Exchange Group.
Despite these strong results in investment banking, Goldman took a $415 million pretax hit from its consumer banking division, a segment the bank has been scaling back to refocus on its core areas of investment banking and trading.
Bank of America, meanwhile, reported a 12% decline in net income to $6.9 billion, or 81 cents per share, largely due to increased expenses and losses on loans. Nevertheless, CEO Brian Moynihan described the earnings as “solid,” pointing to 18% growth in investment banking revenues, along with strong performances in asset management and trading. “We also continue to benefit from our investments in the business,” Moynihan noted in a statement.
Citigroup, the third-largest lender in the U.S., reported a smaller-than-anticipated decline in profit for the third quarter. The bank’s net income dropped to $3.2 billion, or $1.51 per share, from $3.5 billion, or $1.63 per share, in the previous year. Even so, Citigroup’s results exceeded Wall Street estimates, which had forecast earnings of $1.31 per share. Citigroup also saw a 31% rise in investment banking revenues, which reached $934 million.
The increased activity in investment banking follows two years of higher interest rates, which slowed the pace of major transactions. The recent rate cut is seen as a positive signal for further dealmaking. Additionally, a report from New York State Comptroller Thomas DiNapoli forecasts that Wall Street bonuses could rise by more than 7% due to the uptick in deals, providing a significant boost to the state’s tax revenues.
