Goldman Sachs, America’s largest investment bank reported better than expected first earnings Thursday, driven by bullish results in its FICC global markets trading (fixed-income, currencies, and commodities). FICC helped offset a sharp decline in investment banking revenue. The trading goliath followed five of the largest U.S. banks, JPMorgan Chase (JPM), Citigroup (C), PNC, Morgan Stanley (MS) and Wells Fargo (WFC) reporting mixed results last week.
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Goldman Sachs Group Inc NYSE: GS Reported Before Open Thursday
$10.76 Beat $8.90 EPS and $12.90 Billion Beat $11.94 Billion Forecast in Revenue
GS Q1 2022 Highlights
- Goldman Sachs earned $10.76 a share in the period, down 42% from $18.60 a share in the quarter a year ago, but above the FactSet consensus estimate of $8.90 a share.
- Revenue in the period of $12.9 billion topped the consensus estimate by about $1 billion.
- Return on equity of 15% in the period
- Book value rose 3% year-to-date to $293 a share. GS stock now trades for 1.1 times book value, in comparison JPMorgan Chase trades about 1.5 times book.
- Global markets revenue was up 4% year-over-year, to $7.9 billion, and 98% above the level in the fourth quarter.
- FICC revenue was up 21%, to $4.7 billion in the quarter versus the first quarter of 2021
- Equity trading revenue was down 15% at $3.1 billion.
- Investment banking revenue was down 36% in the first quarter to $2.4 billion, driven by an 83% drop in equity underwriting revenue to $261 million as the IPO market for initial public dried up in the period.
- GS reduced its compensation expense by $2 billion in the first quarter to $4.1 billion relative to the first quarter of 2021.
- The ratio of compensation to net revenues fell to 32% from 34% a year ago.
- Goldman’s headcount continued to rise, at 45,100 in the first quarter, up from 43,900 in the fourth quarter and 40,300 in the year-earlier period.
Goldman has a $18 billion portfolio of public and private equity investments that it has been scaling back in recent quarters as it seeks to reduce the capital-intensive investments in favor of managing more money on behalf of clients. Those investments had a loss of $367 million in the period against profits of $3.1 billion in the first quarter of 2021. This reflected the tough equity market conditions in the first quarter.
Goldman said “net losses in equity investments reflected significant mark-to-market net losses from investments in public equities and significantly lower net gains from investments in private equities compared with a strong prior year period.”
Goldman had a huge 2021 in which it earned a record $59.45 a share, more than double the $24.74 in 2020. It earned an outsize 23% return on equity during 2021 and a solid 15.6% in the fourth quarter.
GS is a global leader in investment banking space with solid growth momentum in investment banking continuing in 2021. This was due to the jump in M&A and Initial Public Offering activity.
Goldman more than most had been able to profit handsomely from increased trading activity. The major upside for banks is higher short-term rates improving their net interest margins. Banks will benefit from rising rates, provided that they don’t go up too rapidly and hurt demand for mortgages, credit cards and other loans.
Source: Goldman Sachs
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