Revenue of $20.3 billion beat the $19.93 billion estimate by 1.9% and EPS of $3.03 beat $2.93 by 3.4%, with return on tangible common equity of 22.6% a fifth consecutive quarter above 20%.
Institutional securities carried the quarter at $10 billion of revenue, up 18% year over year, but the growth was concentrated in equities at $5.8 billion and up 41%; investment banking added 2% to $2.2 billion and fixed income fell to $2 billion.
Wealth management set records at every line that matters: revenue of $9.1 billion, pre-tax profit of $2.8 billion, a 30.4% pre-tax margin, net new assets of $232 billion and fee-based flows of $80 billion.
Guidance stayed narrow and unrevised: net interest income up modestly in the fourth quarter and expanding next year on loan growth, a fourth-quarter tax rate slightly above the third quarter's 23.3%, and the full-year rate unchanged.
The one thing that matters: the beat sits on the firm's most cyclical line, with equities up 41% to $5.8 billion while investment banking grew 2% and fixed income declined, and management describes volumes slowing after Labor Day without quantifying what carries into the fourth quarter.
Guidance & KPIs
Item
New guidance
Prior guidance
Net interest income, fourth quarter
we expect a modest increase in the fourth quarter, subject to rates and client behavior
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Tax rate, fourth quarter
slightly above the third quarter's tax rate
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Full year tax rate guidance
remains unchanged
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Net interest income, next year
We do expect to see NII over next year expand, and to your point, that's largely on the back of loan growth.
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Management commentary
Management split the quarter in two: July and August unusually brisk on hyperscaler AI investment, then slower volumes across asset classes after a shortened post-Labor Day September as rates and Middle East tensions weighed.
Pick put hyperscaler capital expenditure at roughly $1 trillion a year, worth 50 to 70 basis points of U.S. real GDP, and said he does not expect it to accelerate from that level.
On AI the firm has moved from overweight to double overweight, which Pick defined as rigor about where risk capital goes rather than more balance sheet: "I imagine there are going to be cases where we are going to make mistakes."
Yeshaya tied the softer net interest income to a deliberate strategic decision to grow the bank, with the funding benefit arriving over the course of next year and bank-first clients converting into advisory relationships about a third of the time.
Sponsor activity remains the lagging piece of the cycle: Pick said some sponsors are stuck on marks and models that will not come to pass, while strategic corporates now lead the corporate finance life cycle.
Quality of earnings
The record flow numbers are more concentrated than the headline suggests. Nearly half of the $80 billion of fee-based flows came from a single corporate retirement mandate, and just over half of the $232 billion of net new assets was IPO-related, both sources management says will ebb and flow.
Growth in the bank is costing net interest income before it pays. Deposits grew nearly $30 billion sequentially to $465 billion while net interest income slipped to $2.2 billion, and the funding benefit is placed over the course of next year rather than this one.
Two soft lines are explained rather than quantified. Investment management revenue of $1.5 billion was muted by a carry reversal on two investments in a private fund, and wealth transactional revenue is up 6% only after excluding the prior year's deferred compensation benefit.
Gotchas & watch items
Equity underwriting revenue of $525 million fell year over year against broad-based strength a year ago, while the banking pipeline described as high and robust carries no figure.
Fixed income revenue of $2 billion declined on lower structured activity in credit and commodities, the one institutional line that did not share in the segment's 18% growth.
The 22.6% return on tangible common equity rests on a quarter management itself split in two, brisk through July and August and slower across asset classes after Labor Day.
Standardized risk-weighted assets rose sequentially to $596 billion on markets activity and corporate lending, so the 300 basis points of excess CET1 and the 14.9% ratio are already being spent on client balance sheet.