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Earnings Results: Goldman beats lowered earnings target and unveils plan to reorganize under three business units

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Goldman Sachs Group Inc. shares rose Tuesday as the bank beat lowered profit expectations for the third quarter, while confirming plans to reorganize into three business units in a move to emphasize its fee income.

Goldman Sachs

said its third-quarter net income fell about 44% to $2.96 billion, or $8.25 a share, from $5.28 billion, or $14.93 a share, in the year-ago quarter.

Revenue dropped to $11.98 billion from $13.61 billion.

Wall Street analysts expected Goldman Sachs to earn $7.75 a share on revenue of $11.42 billion, according to estimates compiled by FactSet. Over the summer and fall, earnings forecasts by analysts collectively fell 99 cents from the $8.74 a share estimate on June 30.

“Against the backdrop of uncertainty and volatility in the markets, we continue to prudently manage our resources and remain focused on risk management as we serve our clients,” Chief Executive Officer David Solomon said.

Shares of Goldman Sachs rose 2.3% in midday trades, lending strength to the broad equities market.

Among the key numbers for Goldman, the company reported firmwide headcount of 49,100, up from 43,000 in the year-ago quarter and 47,000 in the second quarter.

On a conference call with analysts, Goldman said it was slowing its pace of hiring but that in the third quarter, it typically brings on younger employees or “new classes of starting professionals” as the company describes them.

Goldman said it’s focusing on overall levels of head count growth while looking to slow it, plus it’s looking to remain “nimble and strategic with respect to strategic hires.”

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Goldman’s management and other fees of $2.24 billion, up 15% over the year-ago period and a new record.

The bank’s consumer and wealth management business reported revenue of $2.38 billion, a record, and up 18%.

Third-quarter investment banking revenue of $1.58 billion fell 57% from the year-ago period and down 26% from the second quarter, as deal-making for initial public offerings dried up and capital-raising activities cooled in the face of higher interest rates.

Global markets revenue rose 11% to $6.2 billion, reflecting higher net revenue in fixed income and commodities while net revenue in equities trading dropped 14% to $2.68 billion.

In the most major reorganization since Solomon took over as CEO in 2019, Goldman Sachs said it will operate the bank under three business units: Asset & Wealth Management, Global Banking & Markets and Platform Solutions.

Citi analyst Keith Horowitz said the new operating segments make sense.

“[We] are intrigued by spitting out Platform Solutions which is their growth channel and believe new structure will provide more transparency on ability to capitalize on opportunities,” said Horowitz, who reiterated a buy rating on Goldman.

As part of the new organization, Marc Nachmann will be global head of Asset & Wealth Management, and Julian Salisbury will be chief investment officer of the unit, with both reporting to Goldman Chief Operating Officer John Waldron.

Goldman executives Ashok Varadhan, Dan Dees and Jim Esposito will serve as global co-heads of Global Banking & Markets, while Stephanie Cohen will head Platform Solutions, which will house its transaction banking, its GreenSky lending unit, as well as its consumer partnership with Apple Inc.

and others.

Reports of the change surfaced in recent days.

The bank said its key priorities moving forward include growing management fees, maximizing wallet share and growing its financing activities, as well as scaling its platform solutions to deliver pretax profitability.

Shares of Goldman Sachs are down 19.8% in 2022 compared with a 16.9% drop by the Dow Jones Industrial Average
a 22.8% loss by the S&P 500

and a drop of 18.6% by the Financial Select SPDR Fund

Goldman Sachs marks the last of the six U.S. megabanks to report since Friday.

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