Goldman Sachs: Strong momentum in growth of US retail brokerages expected to continue, prospects for recovery in investment banking business still to be confirmed.

Goldman Sachs Group, Inc. released a research report on February 23rd stating that in the strong momentum of retail trading, the market's optimism towards retail brokers continues; even though there was strong profit growth in the fourth quarter of last year, the recovery of the investment banking industry still faces challenges. Goldman Sachs Group, Inc. pointed out that since January 1, 2025, the US retail brokerage stocks covered by the bank - Robinhood (HOOD.US) and Interactive Brokers Group, Inc. Class A (IBKR.US) - have increased by an average of about 35%, continuing the strong momentum of about 140% in 2024, far outperforming the S&P 500 index. Meanwhile, US investment banking stocks have dropped by about 5% during the same period (compared to a 60% increase in 2024), lagging behind the S&P 500 index by 9 percentage points. According to Goldman Sachs Group, Inc., this reflects the market's sustained optimism for the long-term prosperity of retail trading momentum. In the fourth quarter of 2024, retail brokerage commission income was 4% higher than expected, and indicators in January still showed strong performance. Goldman Sachs Group, Inc. believes that with strong user acquisition, asset accumulation, and favorable cyclicality driving the retail trading environment, there is room for further growth in retail trading activity from 2025 to 2027. On the other hand, doubts about the recovery of the investment banking industry have risen again, with industry merger and acquisition fees announced so far this year down 27% year-on-year, and equity capital markets (ECM)/debt capital markets (DCM) trading volumes down 19% and 14% respectively in January. Goldman Sachs Group, Inc. believes that to see the investment banking industry outperform the market again, we may need to see the industry's activities strengthen once more. Goldman Sachs Group, Inc. stated that people are optimistic that different revenue trends have led people to have different profit margin expectations for these two sub-industries. People are optimistic that the profit margins of retail brokers can remain at high levels and may even increase further, but the negative structural comprehensive leverage ratio of many investment banks still causes concern. Furthermore, people seem willing to give higher valuations to retail brokers, reflecting strong user and market share growth, while many investment banks have seen multiple business expansions slow down, and even contract in some cases. Goldman Sachs Group, Inc. believes that the currently higher price-to-earnings ratio of retail brokers may persist for some time, although further outperformance may be more driven by profit expectations.