Goldman Sachs reports record results that top the Street amid booming investment banking

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David Solomon, CEO, Goldman Sachs, speaking at the World Economic Forum in Davos, Switzerland, Jan. 23, 2020.
Adam Galacia | CNBC

Goldman Sachs on Wednesday blew past analysts’ expectations with record first-quarter net profits and revenues on strong performance from the firm’s investment banking and trading businesses.

The bank posted per-share earnings of $18.60, crushing the $10.22 estimate of analysts surveyed by Refinitiv and representing growth of 498% from the same period one year ago. Revenue of $17.7 billion easily topped expectations of $12.6 billion.

Here are the numbers:

Earnings: $18.60 per share, vs. $10.22 per share expected by analysts polled by Refinitiv.
Revenue: $17.7 billion, vs. $12.6 billion expected.
Trading Revenue: Fixed Income: $3.89 billion, Equities: $3.69 billion
Investment Banking: $3.77 billion

Shares of the New York-based bank rose 1.5% following the release, which showed that Goldman’s first-quarter revenues more than doubled on a year-over-year basis.

“We have been working hard alongside our clients in preparation for a world beyond the pandemic and a more stable economic environment,” CEO David Solomon said in the earnings release. “Our businesses remain very well positioned to help our clients reposition for the recovery, and that strength is reflected in the record revenues and earnings achieved this quarter.”

Expectations were high for Goldman as the economic recovery and record first-quarter issuance of blank check companies known as SPACs were expected to lift investment banking revenues. Earlier on Wednesday, JPMorgan Chase posted robust trading results for the first quarter and a $5.2 billion tailwind from releasing funds it had set aside for loan losses that did not materialize.

At Goldman, the deluge of SPACs helped push investing banking net revenues to a record $3.77 billion for the quarter, including record equity underwriting. The headline investment banking revenue number exceeded the $2.9 billion estimate and represents a 73% surge from the same time last year.

Financial advisory revenues totaled $1.12 billion.

“The increase in Underwriting net revenues was due to significantly higher net revenues in both Equity underwriting, primarily driven by strong initial public offerings activity,” the bank said in its release. “The increase in Financial advisory net revenues reflected a significant increase in completed mergers and acquisitions transactions.”

Asset management generated record quarterly net revenues of $4.61 billion, reflecting record net revenues from equity investments.

In its Global Markets unit, traders produced a 47% bump in revenue from a year earlier to $7.58 billion. That sum was split between $3.89 billion in fixed-income trading and $3.69 billion in equities, which reflected year-over-year growth of 31% and 68%, respectively.

The bank said the strong growth in fixed-income trading was thanks in part to “significantly higher” net sales in mortgages and interest rate products.

Of the six biggest U.S. banks, Goldman gets the biggest share of its revenue from Wall Street activities including trading and investment banking. For the past few years that has been a detriment to the firm, as retail banking fueled by cheap consumer deposits has driven the industry’s record profits.

That dynamic reversed during the coronavirus pandemic, when firms with sizable consumer operations had to set aside tens of billions of dollars for anticipated loan losses, causing banks like Wells Fargo to post their first quarterly loss since the financial crisis.

Goldman shares have climbed 24% this year, roughly matching the gain of the KBW Bank Index.

This story is developing. Please check back for updates.

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