Goldman Sachs Rises as Banking Strength Eclipses Consumer Exit Costs
Shares climb after a strong Q4 earnings beat, driven by a rebound in trading and investment banking, helps investors look past a revenue miss caused by charges in its consumer division.
Goldman Sachs (NYSE: GS) shares gained on Tuesday after the firm posted fourth-quarter earnings that significantly beat analyst expectations, signaling a potent recovery in its core investment banking and trading operations.
Investors focused on the strong underlying performance, which overshadowed a headline revenue figure that fell short of estimates. The miss was driven by a substantial charge within its Platform Solutions unit, a bookend to the bank's expensive foray into consumer banking.
The investment banking titan reported an adjusted fourth-quarter earnings per share of $13.55, cruising past the consensus estimate of $11.09 by over 22%. However, quarterly revenue of $13.45 billion missed Wall Street's target of $14.25 billion. The market's positive reaction suggests a willingness to forgive the revenue shortfall as a necessary cost of CEO David Solomon’s strategic refocusing.
Underscoring management's confidence, Goldman also announced a dividend increase to $4.50 per share.
The main source of the revenue miss was a $2.26 billion markdown in the Platform Solutions segment. This division houses the remnants of Goldman’s ambitious but ultimately ill-fated consumer strategy, most notably its partnerships for the Apple Card and the GreenSky home improvement loan platform. The charge reflects the costs of unwinding these ventures as Goldman pivots back to its traditional strengths of serving institutional and corporate clients.
In a stark contrast to the consumer-related losses, Goldman’s core business engine, the Global Banking & Markets division, reported a formidable 22% year-over-year revenue increase. This resurgence indicates a healthier environment for deal-making and trading activities, which had been subdued for much of the past year amid economic uncertainty. This robust performance in the bank's primary operations provided the fundamental strength that investors chose to reward.
Mr. Solomon has been clear about his intention to steer the firm away from the consumer businesses that, according to some reports, accumulated over $7 billion in losses since 2020. The bank announced the sale of its GreenSky platform in October, a deal that itself has resulted in significant writedowns over recent quarters. The latest charge tied to the broader consumer portfolio, including the Apple Card, represents another major step in surgically removing that drag on profitability.
Tuesday's results highlight the strategic trade-off at the heart of Goldman Sachs today: absorbing short-term accounting pain for a long-term strategic gain. By taking its medicine on the consumer front, the bank is freeing up capital and management focus to double down on its formidable Global Banking & Markets franchise.
For now, investors appear to be buying into that vision. The strong earnings beat, fueled by the firm's historical power alleys, is being interpreted as a sign that a leaner, more focused Goldman Sachs is better positioned to navigate the market landscape ahead. The cleanup of the consumer experiment may be costly, but the market's verdict suggests it's a price worth paying to let the firm's core strengths shine through.