Tags: Goldman | Wall Street | Bond | Rebound

Goldman Whiffs in Wall Street Bond Rebound That Boosts Peers

Image: Goldman Whiffs in Wall Street Bond Rebound That Boosts Peers
(AP/ Richard Drew)

Tuesday, 18 Apr 2017 10:19 AM

Goldman Sachs Group Inc. stunned Wall Street Tuesday with a rare shortfall in bond-trading revenue, a traditional strength, in a quarter when rivals gained momentum.

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 fell short of analysts’ $2.03 billion estimate. Shares of the company slid 3.5 percent to $218.25 at 9:32 a.m. in New York, the worst performance in the Dow Jones Industrial Average.

“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. 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,” Chief Executive Officer Lloyd Blankfein, who rose through the ranks of the fixed-income business, said in the statement.

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.

Companywide revenue rose 27 percent to $8.03 billion, compared with the $8.33 billion average estimate of analysts surveyed by Bloomberg. Expenses increased 15 percent to $5.49 billion.

Total trading revenue, which also includes equities, fell 2 percent to $3.36 billion. Stock trading fell 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.

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.

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Tuesday, 18 Apr 2017 10:19 AM
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