Goldman Sachs Earnings: Trading Revenue Helps Results; Progress Made in Reducing Consumer Business

Goldman Sachs’ GS trading business helped first-quarter results, while the company made progress in winding down portions of its consumer business. Goldman Sachs reported net income to common shareholders of $3.1 billion, or $8.79 per diluted share, on $12.2 billion of net revenue. Investment banking revenue remained subdued, given the uncertainty in the macroeconomy, with the segment’s top line down 26% from the previous year (and down about 55% from the company’s 2021 average revenue run rate). While management mentioned seeing “green shoots” for investment banking activity, we find it hard to believe there will be a significant uptick until the question of a recession is resolved and interest rates decline. Trading was a relative bright spot, down just 13% from the previous year but up 46% sequentially. We expect to maintain our $410 fair value estimate for narrow-moat-rated Goldman Sachs and assess the shares as moderately undervalued right now.

The company is moving ahead with a selective reduction of its retail consumer-facing business. During the first quarter, Goldman Sachs sold a portion of its Marcus loans, booking $470 million of credit losses on the Marcus portfolio, and management said it is exploring the sale of its GreenSky point-of-sale loan platform. The company isn’t completely exiting its consumer and more traditional banking business, though; it recently launched a high-yield savings account for Apple Card holders and remains committed to its transaction banking platform. As we do not currently attribute much of the company’s value to the consumer businesses Goldman Sachs is exiting, we are fairly neutral on their wind-down; they would likely have taken years to be consistently profitable and only earned their cost of capital. That said, these businesses could have increased the stability of the company’s earnings once they were consistently profitable.