“Our quarterly profitability was inevitably affected by the economic dislocation”, David Solomon said Wednesday, as Goldman reported earnings for the first quarter alongside Bank of America and Citi.
Happily, Goldman managed to escape with just a 0.8% decline in net revenue, which came in at $8.74 billion for the first quarter – so, basically unchanged YoY, although down 12% from Q4. That topline figure is a solid beat to consensus ($7.84 billion) and near the top-end of the range ($4.92 billion to $9.28 billion).
Although asset management revenues plunged, that was “largely offset by significantly higher” net revenues in trading, IB and consumer and wealth management.
Earlier in 2020, Goldman of course announced a revamp in how the bank breaks down results by division. Gone is investing and lending, where things went badly awry at one point last year thanks to trouble in unicorn land. Prop bets now reside in the renamed asset management unit, where net revenues surged in Q4, but tumbled in the first quarter of the new year.
Specifically, Goldman managed to lose $868 million in lending and debt investments in the division, and another $22 million on equities.
“Macroeconomic concerns resulting from the challenging operating environment led to decreased global equity prices, wider credit spreads and uncertainty in the economic outlook”, the bank explained. “As a result, lending and debt investments reflected significant net losses across debt securities and equity investments reflected significant mark-to-market net losses from investments in public equities and significantly lower net gains from investments in private equities”. Mercifully, management and “other fees” was basically stable, and incentive fees posted an anomalous rise.
Goldman’s traders, on the other hand, did well. FICC revenue was $2.97 billion for the quarter, much better than the $2.31 billion consensus was expecting. Equities beat too. Sales and trading revenue there was $2.19 billion, better than the $2.05 billion markets were looking for.
Note that Goldman was coming off a blockbuster quarter for FICC, along with its peers. An easy comp with Q4 2018 made last quarter a low bar, and Goldman vaulted over it. And while Q1’s YoY percentage gain in FICC revenue (33%) isn’t as large as Q4’s ridiculous 68% YoY gain, the $2.97 billion in revenue is remarkable, and reflects strength in currencies and credit products, higher net revenues in commodities and, of course, strong client activity.
It was, in the end, the best quarter for Goldman’s traders in five years.
IB revenues were up handily YoY, and it’s worth noting that corporate lending activity rose 91% from Q4, which Goldman attributes to “significantly higher net revenues related to relationship lending activities, reflecting the impact of changes in credit spreads on hedges”. That sounds like it was tons of fun, and it generated $442 million from January through the end of March.
Overall, IB revenue was nearly $2.2 billion. That’s the second-best showing ever as far as I can tell.
Revenue in consumer and wealth management – which is home to Marcus and Goldman’s card venture with Apple – continued to grow as Goldman makes inroads. The bank managed to deliver higher net interest income thanks to growing deposit balances and credit card loans. They are busy bees scaling up their online consumer business. Deposits rose $12 billion in Q1 – that’s a record for Goldman.
Total loans were up 17% over Q4 which, in case you can’t connect the dots, is due to draws on corporate credit lines. The provision for credit losses was $937 million, up sharply. That’s “primarily due to significantly higher provisions related to corporate loans as a result of continued pressure in the energy sector and the impact of COVID-19 on the broader economic environment”, Goldman remarks.
On top of that, the first quarter “included provisions related to growth in corporate loans and credit card loans”, the release reads.
All in all, Solomon says he’s “firmly convinced that [Goldman] will emerge well-positioned to help our clients and communities recover”.
I don’t doubt it. Well, except for the “communities” part.
