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Goldman Sachs Just Shattered Earnings Expectations

By Matthew Frankel, CFP® - Updated Jan 19, 2021 at 10:45AM

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The investment banking giant posted some impressive results.

We've now heard from most of the biggest U.S. banks, and it's fair to say that Goldman Sachs (GS -1.65%) was probably the biggest winner.

For one thing, the bank destroyed expectations on both the top and bottom lines. Analysts had been looking for earnings of $7.47 per share, and Goldman reported $12.08 today. On the top line, revenue was forecast to come in just shy of $10 billion, and the bank generated $11.74 billion. In other words, the analysts weren't even close on either end.

Businessman pointing to financial chart on monitor.

Image source: Getty Images.

Digging a little deeper

The headline numbers never tell the whole story, so here's a rundown of some of the other important highlights:

  • Investment banking revenue grew by 27% year over year. Equity underwriting was a particularly strong point, which shouldn't be too surprising given the hot IPO market. For the full-year 2020, Goldman's investment banking revenue was the highest it's ever been.
  • Equities trading revenue grew 40% year over year, more than offsetting somewhat disappointing results in fixed income trading. Overall, 2020 trading revenue was 43% higher than in 2019, and was Goldman's highest since the financial crisis.
  • Goldman's return on equity (ROE) for the fourth quarter was a staggering 21.1%. For context, the bank is generally happy with a ROE in the 10% ballpark and its medium-term target calls for 13%.
  • On the consumer banking side, Goldman's consumer deposits grew by 62% in 2020 to $97 billion. Credit card balances also grew, thanks to the success of the Apple (NASDAQ: AAPL) Card.
  • Book value grew 8.1% in 2020 to $236.15 per share.

A tremendous end to 2020

The bottom line is that Goldman Sachs had a fantastic fourth quarter, which is why we're seeing the stock trading higher after the report was released. In fact, aside from a moderate disappointment in fixed-income trading revenue, there isn't much to dislike about the bank's results. If Goldman can keep this momentum up in 2021, it could be a very interesting year for investors.

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