Goldman Sachs reports record results that are one step ahead in booming investment banking
David Solomon, CEO of Goldman Sachs, speaks at the World Economic Forum in Davos, Switzerland on January 23, 2020.
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Goldman Sachs exceeded analyst expectations on Wednesday, posting record first quarter earnings and revenue based on the strong performance of the company’s investment banking and trading businesses.
The bank posted earnings per share of $ 18.60, defeating the estimate of $ 10.22 by analysts surveyed by Refinitiv. The results showed a growth of 498% over the previous year. Revenue of $ 17.7 billion slightly exceeded expectations of $ 12.6 billion.
The shares of the New York-based bank rose 1.7% after the release. This indicated that Goldman’s sales more than doubled year over year in the first quarter.
“We have worked hard with our customers to prepare a world beyond the pandemic and a more stable economic environment,” said CEO David Solomon in the earnings release. “Our businesses remain very well positioned to help our clients reposition themselves for the recovery. That strength is reflected in the record sales and results for the quarter.”
Expectations for Goldman were high as the economic recovery and record issuance from blank check acquisition firms in the first quarter should boost investment banking revenues. On Wednesday earlier, JPMorgan Chase had released robust trading results for the first quarter and a tailwind of $ 5.2 billion from the release of funds earmarked for credit losses that had not occurred.
Here are Goldman’s numbers:
Merits: $ 18.60 per share versus $ 10.22 per share expected by analysts surveyed by Refinitiv.
Revenue: Expected $ 17.7 billion versus $ 12.6 billion.
Trading Income: Fixed Income: $ 3.89 billion; Equities: $ 3.69 billion
Investment banking: $ 3.77 billion
At Goldman, the spate of SPACs helped boost investing banks’ net income to a record $ 3.77 billion in the quarter, including record underwriting of stocks. Investment banking revenue exceeded estimate of $ 2.9 billion, an increase of 73% year over year.
Financial advisory revenues were $ 1.12 billion.
“The increase in net underwriting revenue was due to significantly higher net underwriting revenue from stocks, largely driven by strong initial public offerings,” the bank said in its press release. “The increase in net income from financial advisory services reflected a significant increase in mergers and acquisitions completed.”
Asset Management had a record quarterly revenue of $ 4.61 billion, reflecting record revenue from equity investments.
“Goldman is converting mind share into market share, probably better than any other player,” wrote Mike Mayo, an analyst at Wells Fargo, quarter after quarter and year after year. “The main question is sustainability, but we think Goldman is the ideal place for a boom [investment banking]/ Consulting business, as every company in every industry around the world rethinks its business strategy after the pandemic. “
In the Global Markets unit, retailers achieved a 47% year-over-year increase in sales to USD 7.58 billion. That total was split between $ 3.89 billion in bond trading and $ 3.69 billion in stocks, up 31% and 68% year over year, respectively.
The bank said the strong growth in bond trading was partly due to “significantly higher” net sales in mortgage and interest rate products.
Of the six largest US banks, Goldman generates most of its revenue from Wall Street activities, including trading and investment banking. In recent years, this has been a disadvantage for the company as its low-cost consumer-fueled retail business had driven the industry’s record profits.
That dynamic was reversed during the coronavirus pandemic, when companies with sizeable consumer businesses had to set aside tens of billions of dollars for expected credit losses, causing banks like Wells Fargo to post their first quarterly loss since the financial crisis.
Goldman stock is up 24% this year, roughly equaling earnings on the KBW Bank Index.
– CNBC’s Michael Bloom contributed to the coverage.
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