Goldman Tumbles as Bank Strikes Out on Bond-Trading RevivalBy
CEO Blankfein cites challenged client activity for shortfall
Firm blames commodities, currencies weakness for trading miss
Goldman Sachs Group Inc. fell the most since the day after the U.K. voted to leave the European Union, leading the Dow Jones Industrial Average lower after bond-trading revenue fell short of estimates and lagged behind rivals.
Shares of the company slid 4.7 percent to $215.59 at 4 p.m. in New York, the most since June 24. Revenue from fixed-income trading of $1.69 billion suffered from weaker demand in commodities and currencies, the New York-based company said Tuesday in a statement, and missed analysts’ $2.03 billion estimate.
“This is a hole, just like last year started in a hole,” Devin Ryan, an analyst at JMP Securities LLC, said in a phone interview. “Seasonally you should have some tailwinds in the beginning of the year, so it’s not normal to start the year slow.”
The surprise results contrast with reports from Goldman Sachs’s three bigger competitors. Bank of America Corp. said earlier Tuesday that its trading revenue climbed, while JPMorgan Chase & Co. and Citigroup Inc. last week reported revenue from that business exceeded estimates. Chief Executive Officer Lloyd Blankfein has said he’d like to operate his firm with less capital and that President Donald Trump’s plan to reduce regulations may help trading.
“The operating environment was mixed, with client activity challenged in certain market-making businesses,” Blankfein, who rose through the ranks of the fixed-income business, said in the statement.
Analysts on a conference call peppered Deputy Chief Financial Officer Marty Chavez with six questions about the trading slowdown. Chavez, who will take over the CFO role from Harvey Schwartz at the end of this month, attributed the decline to lower volatility in commodities and currency markets. The dollar-euro exchange rate and crude oil prices are the stablest they’ve been in about two years, he said. Chavez also cited the firm’s client mix, compared with bigger competitors who have larger lending books and more corporate customers.
Net income almost doubled to $2.26 billion, or $5.15 a share, from $1.14 billion, or $2.68, a year earlier, the company said in the statement. The average estimate of 17 analysts surveyed by Bloomberg was for adjusted earnings of $5.34 a share.
Bank of America posted a 40 percent surge in first-quarter profit, fueled by stronger trading revenue, as CEO Brian Moynihan expressed optimism about the U.S. economy. Fixed-income trading revenue rose 29 percent to $2.93 billion, beating analysts’ $2.6 billion average estimate. Morgan Stanley wraps up first-quarter earnings season Wednesday.
Goldman Sachs’s companywide revenue increased 27 percent to $8.03 billion, compared with the $8.33 billion average estimate of analysts surveyed by Bloomberg. Expenses climbed 15 percent to $5.49 billion.
Total trading revenue, which also includes equities, fell 2 percent to $3.36 billion. Stock trading dropped 6 percent to $1.67 billion, roughly matching analysts’ $1.63 billion estimate. The first quarter of 2016 was the weakest start to the year for the firm since before the financial crisis. The period usually accounts for about a third of the entire year’s trading revenue, according to Oppenheimer & Co.’s Christopher Kotowski.
Goldman’s commodities-trading unit is run by Greg Agran, while Kayhan Mirza in London handles foreign exchange. Credit trading, also singled out for its weakness, is overseen by Justin Gmelich.
Investment-banking revenue rose 16 percent to $1.7 billion, helped by debt underwriting, where revenue advanced 25 percent to $636 million. Equity underwriting surged 70 percent to $311 million, while fees from advising companies on mergers and acquisitions fell 2 percent to $756 million. Goldman Sachs said its investment-banking backlog decreased from the fourth quarter and last year’s first quarter.
Revenue from the investing and lending segment, which houses stakes the firm has in other companies or loans made to corporations or high-net worth individuals, rose to $1.46 billion from $87 million in last year’s first quarter.
Investment-management revenue rose 12 percent to $1.5 billion on higher management and incentive fees, and transaction revenue. Assets under supervision fell 0.4 percent from the end of the year to $1.37 trillion.
Goldman Sachs’s share price surged 32 percent from the U.S. presidential election through the end of last year on optimism Trump would usher in pro-growth economic policies, and as firm alumni including former President Gary Cohn took up key positions in the administration.