Goldman Sachs wealth earnings rise in 2022 Q1 despite volatility

Goldman Sachs’ wealth and consumer arm reels in record business

April 18, 2022 12:30 PM

Despite the impact of equity volatility in a time of mixed economic signals, the wealth management arm of Goldman Sachs is keeping up its growth.

For at least the third period in a row, the megabank’s Consumer & Wealth Management unit reeled in at least 20% higher revenue than the same time a year ago, according to Goldman’s April 14 earnings report for the first quarter. On a call with analysts, CEO David Solomon shared his view of the many questions surrounding the current economic outlook and how the firm is eyeing its next moves in wealth management.

“We continue to be focused on that opportunity,” Solomon said in response to a question about the firm’s wealth business, according to a transcript by the investing website Seeking Alpha. “I'd just highlight that that's a process that takes time. You add wealth advisors, you add footprint. It's a slower process if you do it organically. But we see it as a very big opportunity. I think we have an aspirational brand in the wealth space.”

The firm is “off to a good start” but sees “a lot of organic opportunity” through employers who are increasingly seeking out wealth management services for workers, he added.

The firm acquired RIA consolidator and technology firm United Capital in 2019 and custodian Folio Financial in 2020. Its Ayco channel and its private bank have wealth management services as well, and Goldman’s online-only Marcus bank offers high-yield savings accounts and loans within the Consumer & Wealth unit. However, the firm only releases certain metrics relating to its wealth management business and none specific to Goldman Sachs Personal Financial Management, the rebranded former United Capital.

For coverage of Goldman’s earnings from the prior quarter, click here. To see the main wealth management takeaways from the first quarter, scroll down our slideshow.

Assets under supervision

The megabank’s wealth manager has more assets than this time last year but fewer than the previous period, due to recent volatility in equity values. Client assets under supervision in the Consumer & Wealth unit rose 16% year over year to $738 billion in the first quarter. A net inflow of $15 billion, including $11 billion in equities, $3 billion in alternative investments and $1 billion in liquidity products, failed to offset the depreciation of $28 billion from the unit’s starting point at the beginning of the quarter with $751 billion in assets under supervision.

Rising wealth management business

Despite the lower asset values, the firm’s wealth business is growing. Net revenue in the firm’s wealth management business surged by 19% year over year to $1.62 billion in the first quarter. The higher revenue stemmed from taking in more management fees and other kinds of costs on the greater amount of assets under supervision, as well as increased loan balances driving more private banking and lending business.

Record net revenues in Consumer & Wealth

Across the whole Consumer & Wealth segment, management and other fees climbed 17% to $1.26 billion, private banking and lending revenue jumped 28% to $339 million and incentive payments increased 4% to $27 million. The segment’s net revenue soared by 21% from the year-ago period to $2.10 billion, a record figure that the firm said is driven by the “continued strength” of its wealth manager and consumer banking divisions. Overall, Goldman derived 16% of its quarterly revenue from the Consumer & Wealth unit.

Solomon’s Crypto and blockchain comments

In response to an analyst’s question about cryptocurrency and blockchains, Solomon said that the firm is “certainly engaged with our clients around their interest in the space.” However, the firm is “really following a regulatory lead” at the current time, with a “very restrictive and very, very small” window for a bank the size of Goldman, he said.

“I don't have great insight into how that will or will not change during the course of 2022, but we're engaged in dialogue with our clients,” Solomon said. “When you think about blockchain more broadly in terms of how it supports the infrastructure, payment systems and other activities in the financial markets, we're extremely engaged and invested in thinking about how Goldman Sachs participates in that and how that will affect different business channels and business opportunities, because that's to me a little bit separate from clients' interest in cryptocurrency.”

Solomon’s economic outlook

During his prepared remarks at the beginning of the call, Solomon devoted time to condemning “in the strongest possible terms” the Russian invasion of Ukraine and spoke about the economic impact of war and inflation. The winding down of Goldman’s operations in Russia, which is still ongoing, caused a net loss of $300 million in the first quarter, according to Solomon. Citing an “increased risk of stagflation and mixed signals on consumer confidence” in light of the higher prices and supply chain pressures at the same time as low unemployment and higher wages, he sees a long-term impact from the war as well.

“The Russian invasion has further complicated the geopolitical landscape and created an additional level of uncertainty that I expect will outlast the war itself,” Solomon said, according to the Seeking Alpha transcript. “While it is encouraging to see a newfound unity among the Western democracies, the trend towards deglobalization is clearly gaining momentum. The consequences of that shift are likely to be significant and long-lasting, and I believe it will take some time to fully appreciate all the second and third [order] ramifications.”