GOLDMAN SACHS GROUP INC quarterly report, Q3 FY2023

Goldman Sachs Group, Inc. — Q3 2023 Form 10-Q Summary

Business context and reporting period

The Goldman Sachs Group, Inc. is a global financial institution operating through Global Banking & Markets, Asset & Wealth Management, and Platform Solutions. The unaudited report covers the three and nine months ended September 30, 2023, with comparisons to the same periods in 2022 and balance-sheet comparisons to December 31, 2022.

Financial performance and key metrics

MetricQ3 2023Q3 20229M 20239M 2022
Net revenues$11.817B$11.975B$34.936B$36.772B
Pre-tax earnings$2.756B$3.756B$8.485B$11.956B
Net earnings$2.058B$3.069B$6.508B$9.935B
Net earnings to common$1.882B$2.962B$6.040B$9.579B
Diluted EPS$5.47$8.25$17.39$26.71
ROE7.1%11.0%7.6%12.2%
Operating expenses$9.054B$7.704B$26.000B$23.073B
Provision for credit losses$7M$515M$451M$1.743B

Approximate net margin was 17.4% in Q3 and 18.6% for the first nine months. The reported efficiency ratio was 76.6% in Q3 and 74.4% for the first nine months, compared with 64.3% and 62.7%, respectively, in the prior-year periods.

  • Q3 net revenues were essentially flat year over year. Higher market-making, investment-management and Platform Solutions revenues offset lower net interest income, commissions and fees, and Asset & Wealth Management investment results.
  • Nine-month net revenues declined 5%, primarily due to lower investment banking and market-making revenues and lower net interest income.
  • Market-making revenue increased 7% in Q3 to $4.958B but declined 5% for the nine-month period to $14.742B.
  • Investment banking revenue was essentially flat in Q3 at $1.555B but declined 17% for the first nine months to $4.565B.
  • Net interest income declined 24% in Q3 to $1.547B and 11% for the first nine months to $5.012B as higher interest income was more than offset by higher funding and deposit costs.
  • Operating expenses increased 18% in Q3 and 13% for the first nine months, driven by compensation, impairments, the GreenSky write-down and higher transaction-based and technology expenses.

Balance sheet, cash flow, debt and liquidity

Balance-sheet itemSeptember 30, 2023December 31, 2022
Total assets$1.577T$1.442T
Cash and cash equivalents$239.879B$241.825B
Deposits$402.962B$386.665B
Unsecured short-term borrowings$70.009B$60.961B
Unsecured long-term borrowings$224.024B$247.138B
Total shareholders’ equity$117.277B$117.189B
  • Trading assets increased $146.815B to $448.060B, while collateralized financings increased $140.310B to $295.333B.
  • Nine-month operating cash flow was $15.771B, investing cash flow was negative $13.970B, and financing cash flow was negative $216M. Cash declined $1.946B during the period.
  • Average liquidity coverage ratio was 125% and average net stable funding ratio was 117%, above the 100% minimum for each measure.
  • Average global core liquid assets were $405.704B during Q3, compared with $409.649B in Q2.
  • Book value per common share was $313.83 and tangible book value per common share was $292.37 at September 30, 2023.

Capital and shareholder returns

  • CET1 capital was $98.891B and the CET1 ratio was 14.8% under both Standardized and Advanced rules. The Standardized requirement was 13.8% at September 30 and became 13.0% beginning October 1, 2023 after the stress capital buffer was reduced.
  • Tier 1 leverage ratio was 7.1% and supplementary leverage ratio was 5.6%, compared with minimum requirements of 4.0% and 5.0%, respectively.
  • The company repurchased $1.500B of common stock in Q3 and $4.796B during the first nine months. It paid $937M of common dividends in Q3 and declared a quarterly dividend of $2.75 per share.
  • Management expects to moderate Q4 2023 repurchases because of uncertainty regarding proposed Federal Reserve capital rules.

Material changes versus prior comparable periods

  • Global Banking & Markets Q3 net revenues increased 6% to $8.009B, while nine-month revenues declined 9% to $23.642B. Q3 Equities and Other improved, but FICC was lower; nine-month weakness was concentrated in investment banking and FICC.
  • Asset & Wealth Management Q3 net revenues fell 20% to $3.230B and nine-month revenues fell 3% to $9.493B. Equity investments produced losses of $212M in Q3 and $496M for nine months, versus gains in the prior-year periods.
  • Platform Solutions Q3 net revenues increased 53% to $578M, but the segment recorded a $607M pre-tax loss. Nine-month revenue increased 82% to $1.801B, while the nine-month pre-tax loss widened to $1.785B.
  • The allowance for credit losses fell to $4.895B from $5.543B at year-end, largely due to Marcus loan sales and GreenSky-related reserve releases. Nonaccrual loans increased to $4.384B from $2.710B, and past-due loans increased to $1.900B from $1.168B.
  • Headcount was 45,900 at quarter-end, down 5% from December 2022 but up 3% from June 2023 due primarily to campus hiring.

Guidance, outlook, risks and unusual items

  • Management targets through-the-cycle ROE of 14%–16% and ROTE of 15%–17%, versus reported Q3 ROE of 7.1% and ROTE of 7.7%.
  • Asset & Wealth Management targets more than $10B of annual management and other fees in 2024, including more than $2B from alternatives, and medium-term pre-tax margins in the mid-twenties and ROE in the mid-teens.
  • Platform Solutions targets pre-tax profitability by the end of 2025.
  • GreenSky was classified as held for sale; the firm expects the sale to close in Q1 2024. The quarter included a $506M write-down of GreenSky net assets and a $123M markdown of its loan portfolio, partly offset by a $637M reserve release.
  • The firm agreed to sell Personal Financial Management, expected to close in Q4 2023. Substantially all of the Marcus consumer installment-loan portfolio was sold during the first half of 2023.
  • Commercial real estate pressure produced $358M of Q3 impairments and $1.20B of nine-month impairments in consolidated investment entities. The firm held approximately $9.7B of commercial real estate investments in Asset & Wealth Management at September 30.
  • Management estimates that proposed Basel III capital rules, if adopted as proposed and balance-sheet exposures remain similar, could increase regulatory capital requirements by approximately 25% on a fully phased-in basis.
  • The firm faces market, credit, liquidity, operational, regulatory, legal and geopolitical risks, including higher-for-longer interest rates, weaker investment banking activity, commercial real estate stress, consumer credit deterioration, the Middle East conflict, the Russia-Ukraine war and potential regulatory capital increases.
  • The upper end of reasonably possible aggregate litigation losses that management could estimate was approximately $2.2B in excess of related reserves. The filing states that other matters could be material to results in a particular period, although not expected to materially affect financial condition.
  • The firm guarantees that Malaysia receives at least $1.4B in assets and proceeds related to 1MDB and filed arbitration against Malaysia in October 2023 regarding the guarantee.

Most important facts for investors to verify

  • Whether GreenSky and PFM sales close on the anticipated timelines and the final proceeds, losses or additional write-downs.
  • The trajectory of Platform Solutions toward management’s end-2025 profitability target, including credit-card charge-offs and reserve requirements.
  • Commercial real estate valuations, impairments, nonaccrual loans and the performance of related consolidated investment entities.
  • The final form and implementation timing of Basel III and G-SIB capital rules and their effect on CET1 requirements, capital distributions and repurchases.
  • Investment banking backlog conversion, market-making activity and the sustainability of Asset & Wealth Management fee inflows.
  • Changes in nonaccrual and past-due loans, credit-card loss rates, and the sensitivity of the allowance for credit losses to adverse economic scenarios.
  • Developments in the 1MDB arbitration, consumer-investigation matters and significant securities, antitrust and underwriting litigation.