Goldman Sachs Crushes Expectations Once Again

Goldman Sachs (GS -0.71%) released its third-quarter earnings in mid-October, continuing a massively successful year for the investment banking giant. In this Fool Live clip, recorded on Oct. 18, Fool.com contributor Matt Frankel and Industry Focus host Jason Moser discuss the numbers and what investors need to keep in mind. 

Jason Moser: Goldman Sachs wrapped it up for us on Friday morning when they announced their quarterly results. I mean, clearly Goldman is a more investment banking centric idea there. Now, we can't hold that against them because it looks like investment banking revenue for Goldman did pretty darn well this past quarter, Matt.

Matt Frankel: Yeah. They had a pretty strong quarter. Earnings up 63% year-over-year and that's not due to reserve releases. That just because their business is making tons of money. Revenue grew 26% year-over-year. Goldman trades at 7.5 times trailing 12-month earnings right now. 7.5 times earnings. Not many stocks in the market can do that.

Moser: No.

Frankel: Investment banking revenue, you mentioned up 88% year-over-year. They beat expectations pretty much across-the-board throughout their business. They're trying to pivot away from investment banking. Remember, they are building out their credit card business, they have the Apple (AAPL 0.52%) Card, they have the General Motors (GM 1.20%) credit card business.

Moser: Yeah.

Frankel: They are acquiring a Fintech lender called GreenSky (GSKY) that should close in the first quarter of next year. That part of the business, it's still just a small part of the total, just doing the quick math in my head, it's about 15% of the business, the consumer and wealth management division. But it's growing fast, it grows 35% year-over-year, specifically on higher loan balances. All these other banks, their loans were flat, they were down year-over-year. Goldman's are growing. They're building up the credit card business aggressively. They're doing it in the right way, I mean, Apple's customer base are pretty desirable one to bring into your ecosystem. Goldman Sachs, there's really nothing bad to say about the quarter. One thing I would point out is that Goldman Sachs tends to thrive in unusual times.

Moser: Yeah.

Frankel: 2021, so far through the first three quarters has been the most they've earned through three quarters in their history. But the previous record was in 2009, when we all remember what was happening in 2009, that's when they make the most money before this because it was a very volatile environment.

Their investment banking business does well when companies need to raise capital, when there's a lot of trade, when there is a lot of uncertainty, which is great for trading, not necessarily IPOs, but when companies are making fire sale acquisitions, which we saw a ton of in 2009. Some of these banks made big acquisitions in 2009, and Bank of America (BAC -1.07%) acquired Merrill Lynch and Wells Fargo (WFC -1.11%) bought Wachovia, things like that are great for investment banks who facilitate those deals. 2021 has been an unusual year, both in terms of IPO volume. Remember, there has been something like 500 SPACs that have gone public in 2021. It's been an unusual year, it's been a volatile year, both in good and bad ways and Goldman tends to thrive in those environments. It's unclear how much of their earnings growth is transitory and how much is permanent at this point. But other than that, there's not a whole lot negative to say.

Moser: That's a really good point. I mean, you look at the way the company has performed thus far this year, they've grown book value so 17.4% year-to-date so to your point, yeah. I mean, they're thriving in the uncertainty and that uncertainty just creates a lot of business for them and it feels like that's the way the rest of the year is going to shake out and certainly could be into 2022 as well, but I guess we will have to wait and see.