Goldman Sachs wealth business rises in Q2

Goldman Sachs bullish on custodian-brokerage Folio amid record consumer and wealth revenue

July 20, 2022 6:25 PM

Many Wall Street banks have shunned the independent wealth management space, spinning off their registered investment advisory platforms or shying away from maintaining client assets for such firms. Not Goldman Sachs.

In contrast to many rivals, bank CEO David Solomon views the space as “an interesting opportunity.”

Solomon made the remark during a July 18 quarterly earnings call after an analyst asked about the “evolution” of brokerage and custodian Folio Financial, which the megabank bought in 2020. That unit, along with other parts of Goldman’s Consumer and Wealth Management division, drove record results for the bank in the second quarter. It beat Wall Street’s expectations handily, despite falling stock values and rising inflation.

Analyst Devin Ryan of JMP Securities asked Solomon if Wall Street “should expect a more aggressive acceleration in the marketing” of the custodian in coming months and years, according to a transcript from AlphaStreet.

“It’s something that we are focused on as an opportunity for the firm,” Solomon replied. “At this point, the resources and the size and the scope of that are relatively small. But I think as we look forward over the course of the next three years to five years, it will be an area that we see opportunity in and we will turn more focus to expanding.”

Scroll down the slideshow to see the key wealth management takeaways from Goldman’s earnings for the second quarter. For a look at results across the entire megabank, click here. To see the most important wealth management takeaways from the prior quarter, follow this link.

Note: The firm doesn’t disclose metrics specific to Goldman Sachs Personal Financial Management, the home of the rebranded United Capital, an RIA the megabank acquired in 2019. It includes the firm’s private bank and workplace planning channel, Ayco. Each of the metrics below refer to the Consumer and Wealth Management segment, which includes those divisions as well as Folio Financial and high-yield savings and loans from online bank Marcus.

Assets under supervision

The Consumer and Wealth segment’s client assets remained basically flat from the same time a year ago, with the amount ticking down by $1 billion to $671 billion amid falling stock values. Across Goldman Sachs' entire assets under supervision, wealth managers comprised 27% of the total, with institutional investors making up 37% and other third parties at 36%.

Growing wealth management business

Net revenue for Goldman’s wealth manager jumped 13% year over year to $1.57 billion in the second quarter. Higher revenue from private banking and lending balances and rising management and placement fees pushed the business higher in the period. Management fees and other types of charges rose 10% to $1.22 billion.

Record Consumer and Wealth revenue

The Consumer and Wealth segment’s net revenue soared by 25% from the year-ago period to a record $2.28 billion in the second quarter, marking the third quarter in a row with a new high for business in the division. Goldman generated 18% of its overall quarterly net revenue through the segment. The bigger business from the consumer side of the segment stemmed from “significantly” higher credit card and deposit balances, according to the firm.

Economy

Solomon has said the chances of a recession or “some sort of an economic slowdown” are high, based on inflation and a tightening of capital during the recent stock slump. In his prepared remarks at the beginning of the call, he said that inflation is “deeply entrenched in the economy.” Although CEOs of multinational companies have told Solomon that their supply chains remain stressed by inflation, Russia’s invasion of Ukraine and the pandemic, the firm’s economist has told him there are signals that pricing pressures could abate in the second half of 2022.

“The answer is uncertain and we will all be watching it very closely,” Solomon said. “Given all of this, we are seeing shifts in monetary policy and those shifts will continue to tighten economic conditions. I expect there is going to be more volatility and there is going to be more uncertainty.”