It's not really a surprise at this point, but the investment banking giant Goldman Sachs (GS -1.02%) blew out analysts' projections in the third quarter and had another stellar quarter of earnings in what has already been a stellar year for the company. Goldman generated nearly $5.4 billion in profit in the third quarter, or $14.93 in earnings per share, on total revenue of $13.6 billion. The consensus estimate was only $10.18 EPS on revenue of $11.68 billion.

Blowing out analyst expectations and producing massive profits have become the norm for Goldman, as the business is firing on all cylinders, taking advantage of strong market conditions in investment banking and trading, and executing on its strategic vision.

Continued strength

Through the first nine months of the year, Goldman has put up EPS of $48.59 on total revenue of $46.7 billion. EPS has now almost doubled what the bank put up on a full-year basis in 2020, which was a very strong year on its own.

Investment banking net revenue of $3.7 billion in the third quarter is the second highest the bank has ever put up in a quarter, driven by $1.65 billion in financial advisory fees. CFO Stephen Scherr said on the company's third-quarter earnings call that Goldman maintained its No. 1 ranking in the category year to date, with a market share of 32%. The bank helped advise on $1.4 trillion of announced transactions in what has been a red-hot market for mergers and acquisitions (M&A). Scherr added that the pipeline for M&A at the end of the third quarter was "significantly higher" than from the end of 2020.

Ascending 3D bar graph under magnifying glass.

Image source: Getty Images.

Sales and trading also came in particularly strong with more than $5.6 billion of revenue, up 15% from the sequential quarter and 23% on a year-over-year basis. What was particularly impressive was Goldman's performance in its fixed income, currencies, and commodities business (FICC), a business that started to normalize for most banks in the third quarter. FICC revenue of $2.5 billion is up 8% from the sequential quarter and flat on a year-over-year basis.

Other large investment banks such as JPMorgan Chase (JPM -4.50%), Morgan Stanley (MS 0.11%), and Citigroup (C -1.42%) saw their FICC revenue fall on a sequential and year-over-year basis. Bank of America (BAC -1.20%) saw FICC revenue grow modestly from the sequential quarter, but it was down year over year.

Scherr said Goldman gained market share in FICC, as well as its equities trading business, which also saw revenue jump 20% from the sequential quarter. CEO David Solomon acknowledged that trading activity might not stay like this forever, but the bank has made tremendous market share gains in recent years, and Solomon attributes this to focusing less on individual transactions and deals and more on serving clients more comprehensively.

Goldman's growing consumer and wealth management division also showed progress in the quarter, with revenue surpassing $2 billion for the first time ever. It has been working to grow this division to produce more-stable, recurring revenue. And revenue in all parts of this division -- from consumer banking to private banking and lending to fee income -- increased on a quarter-over-quarter basis.

Goldman continues to bulk up that division. The bank made two acquisitions in the quarter, purchasing the buy now, pay later (BNPL) fintech company GreenSky (GSKY) and General Motors' credit card business.

BNPL has been a hot sector as of late, and Goldman will be able to improve the company's operations with cheap deposit funding and by adding the general stability of a bank, which will make GreenSky's operations more efficient and profitable. Solomon said he expects GreenSky to produce 20% returns on the business it generates. Credit card lending can also be very profitable when done right. Both acquisitions will help Marcus, Goldman's consumer banking division and its digital bank, which is already off to a great start.

How long can Goldman keep this up?

While investment banking and trading are volatile businesses, the bank has been blowing out estimates all year and crushing it since the pandemic started. Solomon noted that while activity will not be this strong forever, he thinks when things do normalize, people will see that the bank's businesses are operating in larger markets than they were five years ago.

Solomon also said that the higher economic growth expected in the future should also lead to more growth in all of the bank's business divisions. Add in the growing consumer and wealth management division and the more-stable earnings that will eventually contribute more and more to the bottom line, and I think it's fair to say that even when market conditions do normalize, the future will still be very bright for Goldman.