It wasn’t a big surprise, but Goldman Sachs (NYSE:GS) announced July 17 that current president David Solomon would replace Lloyd Blankfein as CEO on Oct. 1, ending Blankfein’s 12-year run as chief executive.
Solomon’s promotion wasn’t the only news item on the day’s agenda. Goldman Sachs also released earnings, and except for a few small disappointments, it was a good showing for the bank.
Here are three things I liked best about its Q2 2018 earnings.
A Faster Transition
I last discussed Goldman Sachs in March. At the time it was thought Blankfein would hand over the keys to the C-suite sometime in the next 12-18 months.
Well, here we are four months later, and it used earnings as the perfect time to announce Solomon’s ascension to the top job at least six months earlier than expected.
Why now?
I think it’s clear from Goldman Sachs earnings this past quarter that the bank sits on very sound footing providing Solomon with an excellent jumping off point in his new job while reducing the transition time Blankfein has to sit around waiting for the changing of the guard.
As it stands now, Blankfein will leave Goldman Sachs at the end of the year, avoiding staying in the role for too long.
“When things are going badly, you can’t leave. And when things are going well, you don’t want to leave,” Blankfein said. “So if you’re going out on your own steam, it’s always going to be at a moment when you don’t want to leave. And by the way, that’s why people sometimes stay too long.”
Since March when Solomon was promoted to sole president of the bank, it became apparent the transition had begun. To move it up as much as it did says a lot about the board’s comfort with Goldman Sachs’ business at the moment.
The Earnings Themselves
On the top line, Goldman generated $9.4 billion in revenue, 19% over last year, thanks to double-digit increases in all four of its operating segments: Investment Banking, up 18% to $2.1 billion; Institutional Client Services, up 17% to $3.6 billion; Investing & Lending, up 23% to $1.9 billion; and, Investment Management, up 20% to $1.8 billion.
On the bottom line, GS generated net income of $2.6 billion, 40% higher than a year earlier; on a per-share basis, it earned $5.98, 51% higher than a year earlier due to a 5% reduction in shares outstanding.
Analysts were expecting $4.66 a share for a 28% beat.
The only downbeat number was from Goldman’s equity trading department, which delivered $1.89 billion in revenue in the quarter, flat over the same period last year and $50 million below what analysts were expecting.
Other than that, Goldman Sachs delivered the goods.
Marcus
Since the markets bottomed in 2009, GS’ annual trading revenues shrunk by $20 billion. Who knows if they’ll ever revisit their glory days?
As a result, GS has been forced to enter new businesses such as consumer lending using its Marcus platform to loan money to middle-class Americans.
“We’re now building a digital consumer finance platform,” Solomon said in May. “We think digital finance is at a very, very interesting pivot point. And we think we’re in a position where we can be part of the disruption.”
To that end, Marcus has 1.5 million customers who’ve borrowed $3 billion and deposited $22 billion in cash, making it a very attractive revenue stream.
Ultimately, Marcus is going to play in every area of the consumer banking business, something I believe will be very successful.
While it doesn’t break out Marcus in its press release, it is part of the bank’s investing and lending business, which saw a very healthy 23% year-over-year revenue increase in the second quarter.
The Bottom Line on Goldman Sachs Earnings
There was a lot of negative analyst commentary after it announced Q2 2018 earnings.
Personally, if I were David Solomon, I’d like my chances of being successful in my new role as CEO, because from where I sit, GS’ earnings regarding quality were at least a seven out of ten.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
Legendary Investor Louis Navellier’s Trading Breakthrough
Discovered almost by accident, Louis Navellier’s incredible trading breakthrough has delivered 148 double- and triple-digit winners over the past 5 years — including a stunning 487% win in just 10 months.
Learn to use this formula and you can start turning every $10,000 invested into as much as $58,700.
Click here to review Louis’ urgent presentation.
