Goldman reports lackluster wealth management results

Ahead of sale to Creative Planning, Goldman reports wealth management dip

October 17, 2023 2:10 PM

Despite having a record haul from management fees in the third quarter, Goldman Sachs' Asset and Wealth Management division saw a 20% decline in its net revenues.

That plummet was primarily due to losses in both public and private equity investments, much of the latter in real estate. With its 20% year-over-year drop, Goldman's net revenue for its Wealth and Asset Management unit stood at $3.23 billion in the third quarter. With expenses deducted from that, its earnings came in at $129 million.

Helping to bolster those numbers were the bank's roughly $2.4 billion in management fees, a figure up 7% year over year. That marked the first time the fees have risen following three straight quarters of decline.

Goldman said that increase was driven primarily by growth in its assets under supervision, which rose by 10% year over year to $2.68 trillion in the third quarter.

In an earnings call, Goldman Chief Financial Officer Denis Coleman said, "We were very focused on driving growth in the more durable revenue streams of management and other fees as well as private banking and lending, both of which generated record revenues for the year-to-date period."

All told, Goldman reported $2.1 billion in total profit for all of its businesses. Although that was a 33% year-over-year decrease, it still came in ahead of many analysts' expectations.

Goldman has spent much of this year backing away from a previous attempt at offering more ground-level services like retail banking and consumer lending. It agreed in August to sell its Personal Financial Management unit to Overland Park, Kansas-based Creative Planning for an undisclosed amount in the fourth quarter. That unit was acquired in 2019 through Goldman's purchase of the registered investment advisory United Capital.

Goldman has never broken out certain figures for its wealth management business, including the number of advisors it has retained from the former United Capital. But a series of departures from that unit ahead of the sale to Creative Planning has prompted it to file a slew of arbitration claims seeking to enforce nonsolicitation agreements planners had signed when joining the firm.

Goldman has also entered into a deal to sell its GreenSky loan business, often used to finance home improvements, at a steep loss. The bank took a $504 million write-down from the planned sale in the second quarter and had a roughly $65 million loss in the third quarter.

For more highlights from Goldman Sachs' wealth management division's third-quarter earnings, slide down. To read about its second-quarter results, click here. For the first quarter, follow this link.

Wealth and asset management client assets

Of Goldman's $2.68 trillion in assets under supervision, slightly more than $1 trillion is held in bonds and other fixed-income assets, $600 billion in stocks and other equities and $267 billion in alternative assets, among other products. Nearly 30% of the assets were being supervised for wealth management clients and 34% for institutional clients.

Wealth and asset management revenues

Besides the record $2.4 billion in management fees, Goldman made $326 million from debt investments — a figure with no year-over-year change — but lost $212 million on equity investments.

That decline resulted from "net losses from investments in private equities, due to net losses from real estate investments and significantly lower net gains from company-specific events, and net losses from investments in public equities," according to Goldman's earnings. Roughly $170 million of the decline in equity returns was from private investments and $40 million from public investments.

Private banking and lending revenue

Goldman reported a 2% year-over-year increase in its private banking and lending revenue in the third quarter. The division has struggled this year from a continued sell-off of assets once held by its Marcus consumer lending business.

As part of its turn away from retail banking, Goldman decided at the beginning of this year to stop offering personal loans through Marcus. Its partial sale of the business's loan portfolio resulted in a $470 million loss in the first quarter.

Asset and wealth management earnings

The Asset and Wealth Management unit's $129 million in net income for the third quarter was down 86% year over year. Its $3.23 billion in net revenue was offset by slightly more than $3 billion in operating expenses. Those expenses included "impairments of $358 million related to consolidated real estate investments."

Remark

Goldman CEO David Solomon said in the earnings call Tuesday that the sale of the Personal Financial Management unit — which he deemed a small business — will allow Goldman to put its time and money to better uses: namely, soliciting and serving high net worth clients not only in the U.S. but also abroad in Europe.

"It allows us to take the resources and the investment we might have geared toward growing that and add it to our investment in ultrahigh net worth growth," Solomon said. "And we think that's a better returning business and something we're very confident that we can continue to execute on."