Goldman Sachs saw a dramatic 90% increase in equity underwriting fees in the third quarter of 2023, driven by a resurgence of large initial public offerings and secondary stock sales. The bank generated $1.2 billion in equity underwriting revenue, up from $632 million in the same period last year, according to its earnings report released Tuesday.
Big-Ticket Listings Fuel Growth
The surge was fueled by several high-profile IPOs, including the $5.2 billion listing of chip designer Arm Holdings and the $3.7 billion debut of grocery delivery app Instacart. Goldman Sachs served as a lead underwriter on both deals. Secondary offerings, such as a $2.5 billion block trade in energy company Saudi Aramco, also contributed to the fee bonanza.
“We are seeing a meaningful reopening of the equity capital markets after a prolonged drought,” said David Solomon, CEO of Goldman Sachs, in a conference call with analysts. “Our strong pipeline and market position position us well for continued momentum.”
Investment Banking Rebound
Overall investment banking fees at Goldman Sachs rose 38% to $2.9 billion in Q3, beating analyst expectations. Advisory fees from mergers and acquisitions climbed 21% to $1.1 billion, while debt underwriting fees increased 12% to $600 million. The bank’s fixed income, currencies, and commodities trading revenue fell 6% to $3.2 billion, partly offsetting the gains.
The results mark a turnaround for Goldman Sachs, which had faced a slump in dealmaking amid rising interest rates and market volatility. The bank’s equity underwriting fees had dropped 57% in the first half of 2023 compared to the prior year.
Industry-Wide Trend
Goldman’s performance reflects a broader revival in equity capital markets. Globally, IPO proceeds in the third quarter reached $45 billion, more than double the same period in 2022, according to data from Refinitiv. The U.S. market accounted for the largest share, with $28 billion raised, driven by the Arm and Instacart listings.
However, some analysts caution that the rebound may be uneven. “The pipeline remains strong for large, high-quality issuers, but smaller companies may still face challenges due to valuation gaps and regulatory uncertainty,” said Sarah Kocianski, a banking analyst at Autonomous Research.
Outlook and Challenges
Goldman Sachs executives expressed optimism about the fourth quarter, citing a robust backlog of IPO mandates and increased client engagement. The bank also announced a $3 billion share buyback program and raised its quarterly dividend by 10%.
Nevertheless, challenges persist. The bank’s return on equity for the quarter was 10.1%, below its target of 14-16%. Costs rose 8% due to higher compensation and technology investments. Additionally, the bank set aside $1.6 billion for potential credit losses, up from $1.1 billion a year ago.
