Goldman’s Traders Come Up Short, But IB Strong. Expenses Surge

Even Goldman’s traders couldn’t quite measure up in Q4.

Consistent with disappointing markets performance from JPMorgan and Citi, Goldman’s trading revenue was short of consensus last quarter, results out Tuesday showed.

Although the bank’s FICC haul of $1.86 billion was a beat ($1.8 billion), equities revenue of $2.12 billion underwhelmed. The market wanted nearly $2.5 billion.

Despite coming in a touch higher than consensus, FICC revenue was flat YoY. The bank blamed lower net revenues in rates, credit, commodities and mortgages, leaving FX to pick up the slack. In equities, revenue was down 11% from Q4 2020 on weakness in both cash and derivatives.

All told, trading revenue was $3.99 billion for the quarter, 7% lower than Q4 2020’s $4.27 billion haul and well short of the $4.27 billion the Street wanted to see (figure above).

Fortunately, IB was strong. Revenue of $3.8 billion easily beat estimates and served as a convincing encore from Q3’s bonanza. Advisory fees of $1.63 billion nearly matched the prior quarter’s record high (figure below).

The bank cited “a significant increase” in completed M&A. Backlogs remained bloated, albeit falling from Q3, when they receded from record levels seen at the end of the second quarter. Overall, IB revenue was a record (black line in the figure, above).

In Asset Management (which used to be Investment Management before Goldman revamped how it breaks down results by division), revenues bounced from a sharp drop in Q3. For 2021 as a whole, net revenues were a record, driven by management fees and equity investments, particularly private equities, where Goldman’s haul nearly quadrupled from 2020 thanks to “company-specific events and improved corporate performance.”

On the topline, Q4 revenue was $12.64 billion, a beat ($12 billion). EPS was $10.81. For the full year, pretty much everything was a record: Revenue, earnings, EPS, IB, Asset Management and Consumer. Markets revenue for 2021 was the highest in a dozen years.

Expenses rose, as expected. Specifically, operating expenses jumped 23% in Q4 on “significantly higher” comp and benefits, as well as “professional fees,” litigation provisions and regulatory proceedings.

All in all, investors won’t be enamored with the Q4 trading miss (or the rising expenses), but you needn’t lose any sleep over Goldman — they’re fine.

“2021 was a record year,” David Solomon said, calling the firm’s performance “extraordinary,” on the way to touting the bank’s commitment to growth, diversification and, of course, “delivering strong returns for shareholders.”

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