Given blockbuster FICC results from JPMorgan and Citi, where bond traders delivered one of the best fixed income performances in recent memory, one would have expected Goldman to post similarly impressive results.
And they did. Trading revenue surged 33% YoY in Q4 to $3.48 billion. FICC trading – where revenue rose 8% YoY last quarter – generated $1.77 billion in Q4, up 63% YoY. The bank cites an easy compare with Q4 2018 (obviously), improved market conditions compared with the third quarter, but lower client activity levels sequentially.
In equities – which was a bright spot for Goldman in the second quarter, but came in more subdued in Q3 – trading revenue was $1.71 billion in Q4. That represents a 12% YoY jump.
Although the compare with Q4 2018 was an easy one, some are still surprised by just how good the FICC numbers coming out of the street are, especially given relatively low volatility, although there’s more life in rates than in equities and FX. Plus, curve steepening in Q4 apparently boosted spread products at JPMorgan and Citi. BofA’s numbers (out Wednesday morning) were less spectacular, but still showed a 27% YoY jump in FICC trading.
Goldman provides some additional color, noting that the Q4 FICC blowout was “due to significantly higher net revenues in intermediation, reflecting higher net revenues across most major businesses, including significant increases in interest rate products, commodities and mortgages”. Financing revenues were higher as well.
EPS of $4.69 missed even the lowest estimate. The range was $5.01 to $6.24. Consensus was for $5.52. The 24% decline in profits comes courtesy of a $1.09 billion legal charge tied to the looming resolution of the 1MDB scandal.
Net revenue of $9.96 billion was up 23% YoY, and well ahead of estimates. On the top line, Goldman breezed past the top end of the range (estimates ranged from $8.10 billion to $8.94 billion). It was the second best fourth quarter on record in terms of revenues and the best since 2007.
Earlier this month, Goldman of course announced a revamp in how the bank breaks down results by division. Gone is investing and lending, where things went awry last quarter thanks to trouble in unicorn land (the bank lost $267 million from investments in Uber, Avantor and Tradeweb alone). Prop bets will now reside in the renamed asset management unit, where equity investments net revenues were significantly higher in Q4, reflecting net gains in public and private equities. Lending net revenues were also higher, which the bank attributes to higher gains from investments in debt instruments.
Consumer and wealth management – which is home to Marcus and Goldman’s card venture with Apple – generated a paltry 3% of the group’s pre-tax earnings in the first nine months of 2019, a filing released earlier this month showed, but hey, the new breakdown is preferable to the old one, to the extent it makes Goldman easier to understand in the context of its “peers” (and “peers” is always something of a misnomer).
“The presentation is more consistent with the way the business is run and the way it is presented by peers”, Wells Fargo’s Mike Mayo said earlier this month.
Here’s what the revenue breakdown for the whole year looks like:
In consumer and wealth management, revenues were higher YoY in Q4, and basically flat for the year. “Significantly higher net revenues in Consumer banking and record Management and other fees were offset by significantly lower Incentive fees”, the bank says, adding that they’re going to “continue to scale our online deposit platform, as consumer deposits increased $24 billion in 2019 to $60 billion”.
Investment banking revenue was $2.06 billion, a near 6% YoY decline. The problem there looks like a drop in M&A as advisory revenue fell sharply, while underwriting was much higher compared to Q4 of 2018, for obvious reasons.
The provision for credit losses was $336 million in Q4. That is a 51% jump YoY, something Goldman says is due to “higher impairments primarily related to corporate loans”.
“Strong performance in the fourth quarter helped us to deliver solid results for the year, while continuing to invest in new businesses”, Solomon remarked. “We aim to drive higher returns in the future, and look forward to sharing our strategic goals and financial targets at Investor Day later this month”.
Goldman is hosting its first investor day on January 29. Save your DJ jokes.
