Daily Management Review

Quarter Revenues for Goldman Sachs the Lowest in More Than Four Years


Quarter Revenues for Goldman Sachs the Lowest in More Than Four Years
As market volatility hit Goldman Sachs Group Inc's bond trading and investment banking businesses, the Wall Street bank's quarterly profit fell by more than half and revenue slumped to its lowest in more than four years.
Reflecting declines in all of its main businesses, Goldman, wrapping up a dismal quarter for big U.S. banks, reported a 40 percent drop in net revenue.
Sliding commodity and oil prices, worries about the Chinese economy and uncertainty about U.S. interest rates hit Goldman's trading revenue as did other banks.
Down from 14.7 percent a year earlier, Goldman's return on average common equity - a measure of how well the bank uses shareholder money was 6.4 percent in the quarter which highlighted the challenges facing the bank.
In order to cover the cost of capital, many investors think ROE should be at least 10 percent.
Its revenue from trading bonds, currencies and commodities (FICC) fell about 47 percent. Equities trading revenue, normally a strength, slid 23 percent said Goldman Sachs.
Placed at a far cry from the 40 percent the business regularly contributed before the financial crisis, FICC accounted for 26.2 percent of total revenue in the quarter for the bank.
"The market was braced for a weak quarter, but we think the breadth of weakness on the top line will be a disappointment as people try to grapple with the timing of the recovery," Evercore ISI analyst Glenn Schorr wrote in a client note.
A 54 percent drop in adjusted revenue from fixed income and commodities trading and a similar drop in net profit was reported by Goldman's traditional rival, Morgan Stanley. Its equities trading revenue fell 9.3 percent.
For the three months ended March 31, Goldman reported a 56.3 percent fall in net income applicable to common shareholders to $1.2 billion, or $2.68 per share. A year earlier, when the bank recorded its best quarterly profit in five years that figure was $2.75 billion, or $5.94 per share.
According to Thomson Reuters I/B/E/S, analysts on average had expected earnings of $2.45 per share.
Net revenue fell to $6.34 billion from $10.62 billion.
Despite this some optimism about market conditions in the current quarter was expressed by Chief Financial Officer Harvey Schwartz.
"Although the market seems fragile ... it feels like factors impacting the markets in the first quarter have abated," Schwartz said on a call with analysts. He added that the bank would "do what it takes" to maximize returns for shareholders.
There was a fall of 23.2 percent in the investment banking revenue for Goldman to reach $1.46 billion in the quarter. This revenue source includes income from advising on deals and underwriting bond and share offerings.
Goldman, like its rivals, has been cutting costs to make up for weak revenue.
Compensation costs fell 40.3 percent to $2.66 billion in the latest quarter. As employee compensation costs dropped about 40 percent, operating costs fell 28.7 percent to $4.76 billion.