goldman sachs Markets

Goldman Delivers A ‘Meh’

This seems somewhat uninspiring.

With JPMorgan having set the tone on Friday (let’s just ignore how Wells closed), Goldman is up to bat.

In Q4, Goldman joined the rest of the street in reporting lackluster FICC numbers. Specifically, FICC sales and trading revenue at the bank came in at $822 million in the final quarter of the year, that was juuuust a bit outside – consensus was looking for $976.3 million. That 18% YoY drop was blamed on wider credit spreads and a “challenging” environment. It was the worst FICC number since 2008 for Goldman.

In Q1, the picture brightened a bit. FICC sales and trading revenue came in at $1.84 billion for the quarter, that’s ahead of consensus, which was looking for $1.78 billion. It’s also an 11% drop from Q1 2018. The bank cites lower net revenues in rates, currencies and credit products, which were “partially offset” by better results in mortgages and commodities.” Goldman has this to say about the FICC environment:

During the quarter, FICC Client Execution operated in an environment characterized by improved market conditions compared with the fourth quarter of 2018, while levels of volatility were lower and client activity remained low.

There again, it’s the same old quandary: Low volatility can be both a gift and a curse.

As for equities, revenue there was a miss at $1.77 billion versus estimates of $1.83 billion. That’s a 24% drop YoY. Pretty much everything there was lower – client execution, commissions, securities services – all of it. One more time, it’s the “gift and the curse” nature of low vol:

During the quarter, Equities operated in an environment characterized by improved market conditions, however client activity and levels of volatility were both lower compared with the fourth quarter of 2018.

On the whole, trading revenue for the quarter was in-line at $3.61 billion. That’s up 49% sequentially, but represents an 18% drop from the first quarter of 2018.

The headline numbers look ok, one supposes. EPS was $5.71 and net revenue of $8.81 billion missed estimates of $8.97 billion, but came in comfortably above the low end of the range. The dividend was boosted.

IB results beat estimates, with revenue of $1.81 billion printing solidly better than an expected $1.7 billion.

You might recall that Q4 results were bolstered by a 56% rise in advisory revenues to $1.2 billion. That was well ahead of even optimistic forecasts. Long story short, dealmaking saved the day for the bank even as underwriting revenue dove a harrowing 38% in Q4 to $843 million. Advisory was solid again this quarter, jumping 51% YoY to $887 million, as M&A shines.

Underwriting revenues fell 24% from Q1 2018 – the bank cites “a significant decline in industry-wide IPOs” and, notably, lower net revenues in debt underwriting, “primarily due to significantly lower net revenues from leveraged finance transactions.”

Credit loss provisions in Q1 were $224 million – that’s up markedly from the same period last year, and basically flat versus Q4. Goldman says this “primarily reflected provisions related to the consumer loan portfolio.”

Comp expenses for the quarter were $3.26 billion – that’s actually well below consensus ($3.61 billion) and below even the lowest estimate.

All in all, this doesn’t look particularly inspiring one way or another, although I suppose others will have a more “nuanced” take – whatever that means in this context. The shares pared sizable pre-market gains as the numbers crossed.


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