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Goldman Posts Dramatic Drop In Investment And Lending Unit Amid Carnage In Equity Book

Call an Uber.

Following good numbers from JPMorgan, Goldman delivered its third quarter results on Tuesday amid a deluge of big bank earnings.

On the headlines, adjusted EPS of $4.79 was a slight miss – the street was looking for $4.86. The range was $4.25 to $6.01. Net revenue of $8.32 billion was down nearly 4% YoY and barely managed to meet expectations (consensus was $8.31 billion).

FICC trading – where revenue fell 13% last quarter – was better in Q3. Sales and trading revenue there printed $1.41 billion, up nearly 8% YoY, and ahead of estimates ($1.35 billion). The bank cites higher net revenues in commodities, credit products, mortgages and interest rate products. That’s no surprise given the environment. August was a wild month for rates.

Equities was a bright spot for Goldman in Q2. This quarter, sales and trading revenue was $1.88 billion. That’s down QoQ, but up nearly 5% YoY, and represents a small beat. The bank cites higher net revenues in cash products, offset by significantly lower net revenues in derivatives. Client activity during the quarter was more subdued than Q2. That’s in contrast to the FICC side of things, where activity was “solid”.

Notably, it looks like investment and lending was a let down, as expected. Revenue there fell 17% YoY, and 34% from Q2’s blockbuster performance. In equities, revenue plunged 57% compared to Q2. You can probably surmise what the problem there was. To wit:

Net revenues in equity securities were $662 million, 40% lower than the third quarter of 2018, reflecting significantly lower net gains from investments in private equities as well as net losses from investments in public equities.

In case you need it spelled out, the bank lost $267 million from investments in Uber, Avantor and Tradeweb, and one certainly wonders whether WeWork might have played havoc as well.

 

Goldman’s provision for credit losses was $291 million for the quarter – that’s up a handy 67% from last year and 36% above Q2.

IB revenue of $1.69 billion was 15% lower than Q3 2018, and missed estimates ($1.8 billion). That’s the worst showing of Solomon’s short reign.

Speaking of Solomon, he delivered some meaningless remarks. “Our results through the third quarter reflect the underlying strength of our global client franchise and its ability to produce solid results in the context of a mixed operating environment”, he said, adding that the bank will “continue to execute on our strategic priorities, including investing in important growth opportunities in our existing and new businesses and in delivering for our clients in the most efficient and effective manner possible”.

Results

2019-q3-results
2019-q3-earnings-results-presentation

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