Goldman Sachs $GS reported much better than expected second quarter earnings before the open Tuesday. However the market was concerned by slumping fixed income revenue.
Goldman Sachs Group (GS) second-quarter 2017 results provided a positive earnings surprise of $3.95 EPS beating the consensus estimate of $3.36 comfortably. The beat was a flow through from higher equities revenues and lower expenses. However, lower fixed income revenues, given the size of the Goldman book concern. Reduced levels of volatility provide for lower client activity levels.
Goldman Sachs Group (GS) second-quarter 2017 results provided a positive earnings surprise of $3.95 EPS beating the consensus estimate of $3.36 comfortably. The beat was a flow through from higher equities revenues and lower expenses. However, lower fixed income revenues, given the size of the Goldman book concern. Reduced levels of volatility provide for lower client activity levels.
Earnings: Earnings per share of $3.95, beating consensus estimate of $3.36. The net earnings of $1.83 billion are a slight increase with net revenue down 1% year over year to $7.89 billion from the prior-year quarter. $GS revenues beat the consensus estimate of $7.57 billion.
Reaction: Goldman Sachs Group Inc NYSE: GS – Jul 18, 227.19 –2.07 (-0.90%) @ Market Open 
Banking Segments
Institutional Client Services division: Revenues of $3.1 billion, down 17% year over year. Hit by lower net revenues in Fixed Income, Currency and Commodities Client Execution revenues. The commodities execution division was down 40% year over year. Further more there were similar lower revenues from interest rate products, commodities, currencies and credit products.
The positive sectors were mortgage products which saw higher revenues and securities services and equities client execution with a gain in Equities revenues of 8%.
Investment Banking division: Revenues of $1.7 billion, down 3% year over year. GS saw lower debt and equity underwriting revenues, indicating a 1% year-over-year decline in total underwriting fees. Also financial advisory revenues were down 6% with the decreased number of completed industry-wide transactions during the quarter.
Investment Management division: Revenues of $1.5 billion, up 13% year over year. Growth driven by higher incentive and transaction fees, with management and other fees.
Investing and Lending division: Revenues of $1.6 billion in the quarter significantly higher on a year-over-year basis. Saw a ramp in revenues from investments in equities, but lower revenues in debt securities and loans.
Expenses
Total operating expenses decreased 2% year over year to $5.4 billion. There was a decline in compensation and employee benefits expenses of 3%.
Non-compensation expenses were almost flat compared with the prior-year quarter. Expenses included higher levels of brokerage, clearing, exchange and distribution fees, market development expenses, along with depreciation and amortization expenses, mostly offset by reduced other expenses, driven by lower net provisions for litigation and regulatory proceedings.
Capital Position
Goldman exhibited a solid capital position in the reported quarter. As of Jun 30, 2017, the company’s Common Equity Tier 1 ratio was 12.5% under the Basel III Advanced Approach, highlighting the valid transitional provisions. This was down from 12.9% recorded in the prior quarter.
Goldman’s supplementary leverage ratio on a fully phased-in basis was 6.3% at the end of the second quarter, down from 6.4% recorded in the prior quarter.
Adjusted return on average common shareholders’ equity, on an annualized basis, was 8.7% in the reported quarter.
Stock Repurchases & Dividends
During second-quarter 2017, the company repurchased 6.6 million shares of its common stock at an average price per share of $221.92 and a total cost of $1.47 billion.
$GS BoD on July 17, 2017 declared a quarterly dividend of $0.75 per common share. The dividend is payable on Sept. 28, 2017 to shareholders of record on Aug. 31, 2017.
Charts analysis via Alphastreet GS
Source: GS, Alpha Street
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