#GS Q4-23 was quite a spectacular game of smoke and mirrors that, of course, fooled the mainstream media.
CNBC – “Goldman Sachs tops revenue estimates on better-than-expected asset management results”
WSJ – “Goldman Scores a Win With Sharply Higher Earnings”
Let me show you one of the “tricks” they used. Please have a look at Picture 1 from the #GS presentation. The stacked bars representing the trend in NII are positioned in a way that goes upwards from left to right, triggering the brain to associate that with a “positive trend”, while in reality, #GS Net Interest Income crashed from 2bn$ in Q4-22 to 1.3bn$ in Q4-23!
![loans-and-net-interest-income-picture1-240117](https://justdario.com/wp-content/uploads/2024/01/loans-and-net-interest-income-picture1-240117-937x1024.jpg)
What was the bank trying to “hide” here? Perhaps a number that surely would not have been good for #bullish headlines, but rather the opposite. #GS NII in its investment banking division (aka Global Banking & Markets) for the whole of Q4-23 was only 22m$!
Wait a second, wasn’t the #GS Investment Bank loan book the largest in the bank at 117bn$? Furthermore didn’t the loan book growth from 109bn$ in Q3? Uh oh, smells bad… It smells worse if you consider that for the entire year the NII of this book crashed 70% from 2.445bn$ in 2022 to 742m$ in 2023m.
It’s fair to wonder if #GS is having some issues with financing their investment bank loans book and as a result, their funding costs keep increasing to the point where they now outpace the revenues. Furthermore, everyone knows that when a bank cannot make money “being a bank” that’s a big red flag right? Let’s have a look at their “cash and equivalents” to see if things are fine there.
Isn’t it weird that the #GS “cash and equivalent” balance for Q4-22 and Q4-23 is exactly the same. It’s even weirder that this balance only increased by 2bn$ from Q3-23 to Q4-23 (Picture 2). Wasn’t #GS invited to the “Window dressing party”, did it cost them too much to raise cash, did they run out of good collateral to raise more cash, or a combination of these 3 options? Let’s have a look at the #GS peers comparing Q3 and Q4 balances to see if this happened elsewhere:
![gs-cash-and-cash-equivalent-q4-22-q4-23-picture2-240117](https://justdario.com/wp-content/uploads/2024/01/gs-cash-and-cash-equivalent-q4-22-q4-23-picture2-240117-634x1024.jpg)
So it looks like #GS wasn’t the only one not invited to the window dressing party, but #BAC too. Well… that #BAC numbers for Q4 were questionable is something we already addressed (post in quote below). What’s surely concerning here is that, in comparison with Q4-22, #GS is the only bank that so far didn’t significantly boost their “cash and equivalent” balances. Because #GS is so good at managing risk that they don’t need it or (scarily) because they couldn’t do it like to others?
Another thing that #GS “bragged” about in its Q4 was the steady increase of its Equities and FICC financing revenues that, as you can see in Picture 3 (please also note how, this time, the bars in the presentation are stacked “correctly” in the right direction), is quite on a different trend compared to the bank revenues overall (#GS net revenues are back at 2020 levels). Personally speaking, I am not sure it’s a very wise move to make money providing leverage to Hedge funds and Private Equity in a market that is already running at nosebleed leverage levels. Furthermore, it looks like they do that more for “fee revenues” rather than NII ones (as we discussed above).
![gs-the-steady-increase-of-its-equities-and-ficc-financing-revenues-picture3-240117](https://justdario.com/wp-content/uploads/2024/01/gs-the-steady-increase-of-its-equities-and-ficc-financing-revenues-picture3-240117-872x1024.jpg)
Clearly, after dodging the Archegos bullet 2 years back (#CS took it), #GS is back at playing Russian roulette with other brokers considering lending to Hedge Funds and Asset Managers is so far the biggest risk item across all balance sheets reported (TwitterX).
Unfortunately, #GS disclosed very little in its Q4-23 financial statements release and while I noticed other “stranger things” in their number I will need to wait for their SEC 10-Q filing to clarify what’s going on there.
Read on TwitterX.