Trading and investment banking drive jump in Goldman revenues

Goldman Sachs more than doubled its revenue in the first quarter versus a year earlier and posted its highest return on equity since 2009, as its traditional trading and investment banking businesses delivered bumper returns.

The Wall Street bank posted net earnings of $6.84bn in the quarter, a 464 per cent increase on the $1.2bn it made in the first three months of 2020 when pandemic-induced loan loss provisions and investment losses took a chunk out of profits.

Earnings per share in the first quarter were $18.60, far higher than the $10.22 predicted by analysts, while revenues of $17.7bn also smashed the $12.83bn analysts had pencilled in. Return on equity for the quarter was 31 per cent, which is more than twice the 14 per cent medium-term target Goldman laid out a year ago when it vowed to lift returns to the level enjoyed by rivals.

Shares rose 3.5 per cent to $339.30 on the results, which were described as “quite stunning” by analysts at Oppenheimer and a “blow out” by their peers at Evercore ISI.

David Solomon, Goldman’s chair and chief executive, told analysts the bank enjoyed its best quarter in global markets in a decade and was making strides on its strategic priorities.

Still, he cautioned that while the economic backdrop improved in the first quarter, Goldman remained “vigilant to risks across markets”, including the “challenged” rollout of the Covid-19 vaccines in some economies and “the prospect of new variants”, which could raise “concerns about the trajectory of the economic recovery”.

Solomon also cited “elevated valuation levels across certain assets classes” as a potential risk, and said the collapse of Archegos Capital had raised “reasonable questions around market practice and transparency [that] are worthy of debate”. Stephen Scherr, Goldman’s finance chief, said the bank had not sustained losses.

Analysts expected higher fees across almost all of Goldman’s key business lines, especially in trading and investment banking, but not to the extent the company reported.

Goldman’s investment banking fees were up 73 per cent year on year to $3.77bn, beating the 57 per cent rise reported by JPMorgan Chase earlier in the day. Trading revenues at Goldman were up 47 per cent to $7.58bn versus JPMorgan’s 25 per cent increase.

Goldman’s asset management division swung to a $4.6bn profit versus a $96m loss in the first quarter of 2020 on big gains in the bank’s private equity portfolio and some other assets.

“The main question is sustainability,” said Mike Mayo, an analyst, noting that the big gains on Goldman’s equity portfolio “probably won’t be recurring”. Still, he added that Wells Fargo’s view was that “Goldman is in the sweet spot for a booming IB/advisory business as each company in each industry globally has a rethink of its business strategy post-pandemic”.

Profits in consumer and wealth management were up 16 per cent to $1.74bn. Within that, consumer banking profits were up 32 per cent to $371m, as Goldman increased credit card lending and deposits. That division was boosted by the release of $70m from loan loss reserves in the first quarter of 2021, compared with a provisions charge of $937m in the first quarter last year.

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