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Goldman’s profit tumbles 46%, but bank posts strongest bond-trading results in 5 years

David Solomon, the CEO of Goldman Sachs, speaks during the Bloomberg Global Business Forum in New York, September 25, 2019.

Shannon Stapleton | Reuters

Goldman Sachs on Wednesday said first-quarter profit dropped 46% as the coronavirus pandemic wiped out results in its asset management division. 

The bank said it earned $1.21 billion in the quarter, or $3.11 a share, missing the $3.35 estimate of analysts surveyed by Refinitiv. While results were dragged down by losses in debt and equity holdings within the asset management business, the firm’s trading division exceeded expectations. That helped boost companywide revenue to $8.74 billion, topping the $7.92 billion estimate. 

Goldman shares broke into a slight gain, reversing a drop of as much as 3% earlier in trading. 

“While Goldman Sachs’ profits were cut in half, most of its lines of business actually did quite well,” said Octavio Marenzi, CEO of capital markets consultancy Opimas. “Revenues increased in investment banking, global markets and consumer and wealth management. However, the bank took a bath in asset management.”

Revenue in Goldman’s trading division, its single biggest business, surged 28% to $5.16 billion as the bank’s traders took advantage of higher market volatility and client activity. Fixed-income trading revenue came in at $2.97 billion, the division’s best results in five years. Equities revenues totaled $2.19 billion, the second best quarter in five years.

The bank’s investment banking revenue climbed 25% to $2.18 billion as the company helped clients issue debt. Its consumer and wealth management business posted a 21% boost to revenue to $1.49 billion.

But its asset management division posted a $96 million revenue loss in the quarter, compared with a $1.79 billion gain a year earlier. The bank cited “significant” losses in debt and loans in the division.

CEO David Solomon said the firm was “inevitably affected by the economic dislocation” tied to the coronavirus outbreak and that “as public policy measures to stem the pandemic take root, I am firmly convinced that our firm will emerge well-positioned to help our clients and communities recover.”

Now, in the first quarter where the industry’s results have been impacted by the pandemic, Goldman Sachs is showing it may be slightly more insulated from the turmoil facing its bigger peers. Goldman has been the only bank to exceed analysts’ expectations for revenue. Among the six biggest U.S. banks, Goldman derives the biggest share of its revenue from Wall Street activities including trading and mergers advice.

Goldman set aside $937 million for loan losses in the quarter, reflecting its smaller book of loans versus its peers, and the company cited higher provisions for corporate loans in the flailing energy sector.  

Also Wednesday, Bank of America and Citigroup posted 45% and 46% declines in first-quarter profit.

On Tuesday, JPMorgan Chase and Wells Fargo posted sharp drops in first-quarter profit as the banks set aside a combined $10 billion for a coming deluge of loan defaults. A lone bright spot for the banks has been surging trading and bond issuance operations, driven in part by the historic jump in market volatility last month

Here’s what Wall Street expected for Goldman:

Earnings: $3.35 a share, 41% lower from a year earlier, according to Refinitiv.

Revenue: $7.92 billion, a 10% decrease from a year earlier.

Trading Revenue: Fixed Income $1.99 billion, equities $1.92 billion.

Investment Banking Revenue: $1.87 billion.

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