Goldman Sachs' Record Quarter Came From the Businesses David Solomon Never Had to Fix
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Goldman Sachs’ record quarter came from the businesses David Solomon never had to fix.
Second-quarter net revenues, reported in July, hit $20.34 billion, up 39% year-over-year. Earnings per share of $20.98, also a record. Return on equity 23.5%, return on tangible equity 25.5%.
Investment banking fees rose 55% to $3.40 billion, and the backlog, by the CFO’s account, reached a five-year high.
But the largest revenue line was equities trading at $7.42 billion, up 72%. Fixed income, currencies and commodities added $4.59 billion, up 32%.
Trading and banking are the businesses Solomon inherited working. Consumer banking is the one he expanded and then had to unwind.
In January 2023 he conceded Goldman had tried to do “too much, too quickly” in consumer banking. He wound down consumer lending, kept the deposit business, and returned the capital to the institutional businesses.
Meanwhile the cycle turned. Mergers and acquisitions came back, and the AI build-out is pulling enormous capital through the capital markets.
Most of that record likely belongs to the cycle. What Solomon owns is the decision that kept capital behind trading and banking before the cycle arrived.
Solomon said the AI build-out “won’t be a straight line” while reporting a record. That suggests a plan that already assumes some of this quarter’s revenue gives back.
The consumer expansion was a mistake, and the criticism was warranted. Markets price visible mistakes quickly. Repairs often surface years later, after the narrative has moved on.
At Eagle Talon we map a leader’s capital allocation record, the authority they hold, and their fit to the challenge in front of them.
The test comes the first time equities gives back a large share of that 72%. If investment banking fees and asset and wealth management revenue hold up in that quarter, the repair was structural.
When that quarter comes, what would Goldman need to show you before you credit Solomon rather than the cycle?
