Goldman Sachs first-quarter revenue drops across most businesses
US bank sees declines across trading, underwriting, investment management and investing and lending
Bengaluru — Goldman Sachs Group reported lower quarterly revenue in nearly all of its main businesses on Monday, but still beat subdued Wall Street expectations through cost cuts, while offering more details on its sweeping operational revamp.
Goldman's first-quarter profit dropped 20%, with declines across trading, underwriting, investment management and investing and lending. One bright spot was its financial advisory business, where revenue soared 51% on higher deal volumes.
Goldman shares fell nearly 2% in premarket trading.
Goldman, the fifth-largest US bank by assets, has been working since 2017 to reduce its reliance on volatile businesses like trading and push further into consumer lending.
Goldman plans to increase retail deposits by at least $10bn a year over the next few years, according to a presentation it released alongside earnings on Monday. That will help the bank reduce its cost of funding by about one percentage point.
Goldman is also trying to become more efficient, an effort that could reduce costs relative to revenue by one percentage point and boost the return on equity by about 0.4%.
Goldman is finalising broader performance targets, and plans to offer a comprehensive update in the first quarter of 2020, according to the presentation.
“There’s a lot of work that needs to be done at this company to reposition it for growth over the next decade,” David Hendler, an analyst at Viola Risk Advisors bank, said in an interview. “Not completing the strategic review until 2020 is ridiculous. It should be done by the next quarter.”
The first-quarter profit fell to $2.2bn, or $5.71 per share, from $2.7bn, or $6.95 per share, a year ago.
Analysts, on average, expected a profit of $4.89 per share, according to IBES data from Refinitiv.
Total revenue fell 13% to $8.8bn, missing estimates. The biggest drop came from Goldman’s trading business, which was hurt by lower market volatility and the impact of the US government shutdown.
Rivals JPMorgan Chase & Co and Citigroup also reported declines in trading revenue of 10% and 6%, respectively.
Goldman’s operating expenses fell 11% to $5.9bn, mostly on a sharp drop in compensation costs.
Investors may not put much weight in the decline since Goldman might just shift the timing of accruing expected bonuses to later in the year, Citigroup analyst Keith Horowitz said in a note to clients.
CEO David Solomon, who took over the job in 2018, said he was pleased with the bank’s performance, given the muted start to 2019.
Bengaluru — Goldman Sachs beat quarterly profit estimates on Monday as the bank earned more from advising on M&A deals and expenses fell due to lower compensation costs.
The bank’s total revenue, however, fell 13% in the first quarter and missed analysts’ estimates, with three of its four main businesses recording a drop in revenue.
Total institutional client services, the unit that houses the bank's trading business, recorded the biggest drop as lower market volatility coupled with the longest US government shutdown hurt equity and bond trading revenue.
Trading slowed considerably in the quarter as concerns over the US-China trade war eased, and markets rebounded from steep losses in December 2018.
Trading revenue slipped 18% to $3.61bn, with equity trading down 24% and fixed income, currency and commodities trading down 11%.
JPMorgan Chase on Friday reported a 10% decline in adjusted markets revenue. Its equities revenue, on an adjusted basis fell 13%, while fixed income revenue fell 8%.
"We are pleased with our performance in the first quarter, especially in the context of a muted start to the year," Goldman Sachs CEO Officer David Solomon said.
Investment banking was flat, hurt mainly by declines in the underwriting business, which includes initial public offerings.
A prolonged government shutdown at the beginning of 2019 resulted in skeletal staffing at the US Securities and Exchange commission, resulting in the postponement of several IPOs in the quarter.
Financial advisory revenue was the only bright spot, rising 51% during the quarter.
Goldman's net earnings attributable to common shareholders fell to $2.18bn, or $5.71 per share, in the quarter ended March 31, from $2.74bn, or $6.95 per share, a year ago.
Analysts were looking for a profit of $4.89 per share, according to IBES data from Refinitiv.
Total operating expenses fell 11% to $5.86bn.