In-Depth Analysis of Goldman Sachs' 58% Surge in Net Interest Income: Valuation Recovery Opportunities and Investment Strategies for Bank Stocks

Based on the latest financial report data and market analysis, I will provide an in-depth analysis of the reasons for Goldman Sachs’ surge in net interest income and its impact on the valuation of bank stocks.

Goldman Sachs’ net interest income in the fourth quarter of 2024 reached $2.35 billion, a year-over-year increase of 75% (the 58% mentioned by the user may be based on different statistical calibers). This growth mainly stemmed from strategic adjustments to asset allocation [0]. According to financial report data, Goldman Sachs proactively shifted assets from low-yield areas to high-yield asset categories, achieving a significant increase in net interest income.

The average scale of Goldman Sachs’ interest-earning assets in the fourth quarter reached $1.59 trillion, expanding further compared to the previous quarter [0]. The large asset base provided a solid foundation for the growth of net interest income.

Goldman Sachs’ net interest income features diversified sources:

• Global Banking & Markets Segment
  : Net interest income was $869 million, benefiting from the expansion of investment banking business and increased customer financing demand [0]
• Asset & Wealth Management Segment
  : Net interest income was $713 million, mainly derived from private banking and lending businesses [0]
• Platform Solutions Business
  : Net interest income was $763 million, reflecting efficiency improvements brought by digital transformation [0]

Although the Federal Reserve implemented interest rate cuts in 2025, Goldman Sachs effectively hedged the negative impact of falling interest rates on net interest margins through its unique business model. The decline in the bank’s deposit costs outpaced the decline in asset yields, allowing net interest margins to be maintained or even expanded [1].

Market volatility intensified in the fourth quarter, with investors frequently adjusting their portfolios, creating a favorable environment for Goldman Sachs’ trading and investment banking businesses. Equity trading revenue surged 32% year-over-year, and revenue from fixed income, currencies, and commodities (FICC) businesses increased 35% year-over-year [0].

Goldman Sachs analysts pointed out that large U.S. banks are on a “more favorable and sustainable” earnings path. After bottoming out in mid-2024, net interest income is expected to continue its recovery trend until 2027 [1]. This judgment is based on the following factors:

• Loan growth is at the fastest pace since the financial crisis
• Asset repricing effects continue to manifest
• There is still room for optimization of deposit costs

The core valuation metrics of current large bank stocks remain attractive:

• Price-to-book ratio (P/B) is below the historical average
• Stock prices are equivalent to approximately 60% of the forward price-to-earnings ratio of the S&P 500
• There is a valuation discount of about 2.5 times compared to the historical average [1]

Goldman Sachs expects that large Wall Street banks will achieve the following in 2026:

• Net interest income growth of approximately 6%-9%
• Operating expense growth of approximately +5%
• Formation of positive operating leverage to improve profitability [1]

Against the backdrop of regulatory easing, excess capital has significantly enhanced share repurchase capabilities:

• Current cumulative excess capital is approximately $80 billion (accounting for 5% of market capitalization)
• If regulation is further relaxed (such as adjustments to G-SIB buffers), it can increase to $205 billion
• In 2026, the amount of share repurchases + dividend returns is expected to surge 24% year-over-year, equivalent to a 5.5% return on market capitalization [1]

Capital markets and wealth management fees maintain resilience:

• Investment banking fees are expected to continue growing
• Wealth management business benefits from the expansion of assets under management (AUM)
• Equity and fixed income trading revenue remains strong [1]

Based on the three core drivers of “visible NII recovery + fee resilience + operating leverage”, the core bank stock allocation portfolio recommended by Goldman Sachs includes [1]:

1. Improved Regulatory Environment
   : The Trump administration’s relaxation of banking regulations is expected to improve capital return efficiency
2. Remaining Economic Resilience
   : Consumers and businesses remain in healthy condition, supporting credit demand
3. Valuation Recovery Room
   : Core metrics such as P/B are at historical lows, with considerable upside potential

1. Macroeconomic Uncertainty
   : A slowdown in the labor market may affect asset quality
2. Interest Rate Volatility Risk
   : There is uncertainty regarding the Federal Reserve’s policy path
3. Commercial Real Estate Pressure
   : Office building loans still face structural challenges

Goldman Sachs’ 58% surge in net interest income is the result of multiple factors, reflecting a substantive improvement in the fundamentals of bank stocks. This trend has positive implications for the valuation recovery of large U.S. bank stocks, mainly reflected in: enhanced certainty of earnings growth, release of capital return potential, and valuation metrics being at historical lows. Supported by regulatory easing and economic resilience, bank stocks are expected to see a dual boost from valuation recovery and earnings growth.

It is recommended that investors pay attention to the core bank stock allocation portfolio recommended by Goldman Sachs, but they need to closely track changes in the macroeconomy and the Federal Reserve’s policy direction, and carefully evaluate investment risks.

[0] Yahoo Finance - Goldman Sachs Q4 Earnings: Underwriting Boosts Revenue, Assets (https://finance.yahoo.com/news/goldman-sachs-q4-earnings-underwriting-131108778.html)

[1] Investing.com - NII Recovery Cycle Extends to 2027: Wall Street Giants Leading Earnings Season Will Fuel the U.S. Stock Bull Market (https://hk.investing.com/news/stock-market-news/article-1260618)