Goldman Sachs reports record results that top the Street amid booming investment banking

David Solomon, CEO, Goldman Sachs, speaking at the World Economic Forum in Davos, Switzerland, Jan. 23, 2020.

Adam Galacia | CNBC

Goldman Sachs on Wednesday blew past analysts’ expectations with record first-quarter net profits and revenues on strong performance from the firm’s investment banking and trading businesses.

The bank posted per-share earnings of $18.60, crushing the $10.22 estimate of analysts surveyed by Refinitiv. The results represented growth of 498% from a year earlier. Revenue of $17.7 billion easily topped expectations of $12.6 billion.

Shares of the New York-based bank rose 3% following the release, which showed that Goldman’s first-quarter revenues more than doubled on a year-over-year basis.

“We have been working hard alongside our clients in preparation for a world beyond the pandemic and a more stable economic environment,” CEO David Solomon said in the earnings release. “Our businesses remain very well positioned to help our clients reposition for the recovery, and that strength is reflected in the record revenues and earnings achieved this quarter.”

Expectations were high for Goldman as the economic recovery and record first-quarter issuance of blank-check special purpose acquisition companies were expected to lift investment banking revenues. Earlier on Wednesday, JPMorgan Chase posted robust trading results for the first quarter and a $5.2 billion tailwind from releasing funds it had set aside for loan losses that did not materialize.

Here are Goldman’s numbers:

Earnings: $18.60 per share vs. $10.22 per share expected by analysts polled by Refinitiv.
Revenue: $17.7 billion vs. $12.6 billion expected.
Trading Revenue: Fixed Income: $3.89 billion, Equities: $3.69 billion
Investment Banking: $3.77 billion

At Goldman, the deluge of SPACs helped push investing banking net revenues to a record $3.77 billion for the quarter, including record equity underwriting. The headline investment banking revenue number exceeded the $2.9 billion estimate and represented a 73% surge from a year earlier.

Financial advisory revenues totaled $1.12 billion.

“The increase in Underwriting net revenues was due to significantly higher net revenues in both Equity underwriting, primarily driven by strong initial public offerings activity,” the bank said in its release. “The increase in Financial advisory net revenues reflected a significant increase in completed mergers and acquisitions transactions.”

Asset management generated record quarterly net revenues of $4.61 billion, reflecting record net revenues from equity investments.

“Goldman is converting mind share to market share probably better than any player” quarter over quarter and year over year, wrote Wells Fargo analyst Mike Mayo. “The main question is sustainability, but our view is that Goldman is in the sweet spot for a booming [investment banking]/advisory business as each company in each industry globally has a rethink of its business strategy post-pandemic.”

In its Global Markets unit, traders produced a 47% bump in revenue from a year earlier to $7.58 billion. That sum was split between $3.89 billion in fixed-income trading and $3.69 billion in equities, which reflected year-over-year growth of 31% and 68%, respectively.

The bank said the strong growth in fixed-income trading was thanks in part to “significantly higher” net sales in mortgages and interest rate products.

Of the six biggest U.S. banks, Goldman gets the largest share of its revenue from Wall Street activities including trading and investment banking. For the past few years that has been a detriment to the firm, as retail banking fueled by cheap consumer deposits had driven the industry’s record profits.

That dynamic reversed during the coronavirus pandemic, when firms with sizable consumer operations had to set aside tens of billions of dollars for anticipated loan losses, causing banks like Wells Fargo to post their first quarterly loss since the financial crisis.

Goldman shares have climbed 24% this year, roughly matching the gain of the KBW Bank Index.

CNBC’s Michael Bloom contributed reporting.

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Source: CNBC