Goldman Sachs reports record earnings amid booming investment banking services

Goldman Sachs blew analysts’ expectations on Wednesday with a record net profit and revenue from the first quarter due to the strong performance of the firm’s stock traders and investment bankers.

The bank earned $ 18.60 per share, increasing the $ 10.22 estimate of analysts surveyed by Refinitiv and representing 498% growth over the same period a year ago. Revenue of $ 17.7 billion easily exceeded expectations of $ 12.6 billion and represented 102% growth in the first quarter of 2020.

Here are the numbers:

Earnings: $ 18.60 per share, compared to $ 10.22 per share expected by analysts interviewed by Refinitiv.
Income: $ 17.7 billion, compared to $ 12.6 billion.
Trading income: Fixed income: $ 3.89 billion, shares: $ 3.69 billion
Investment banking services: $ 3.77 billion

Shares of the bank in New York rose 1.5% with the release, showing that Goldman’s revenue more than doubled on a year-on-year basis in the first quarter.

“We have worked hard with our clients to prepare for a world outside the pandemic and a more stable economic environment,” said CEO David Solomon. “Our businesses remain very well positioned to help our customers reposition for recovery, and the strength is reflected in the record revenue and earnings achieved this quarter.”

Expectations were high for Goldman, as the economic recovery and record issuance of blank check businesses, known as SPACs, were expected to increase investment banking income. Earlier Wednesday, JPMorgan Chase posted good trading results for the first quarter and a $ 5.2 billion windfall from the release of funds it set aside for unrealized loan losses.

At Goldman, the deluge of SPACs helped increase investment banking net income to a record $ 3.77 billion for the quarter, including record equity underwriting. Total income from investment banking services exceeded the estimate of $ 2.9 billion and represents a surge of 73% compared to the same time last year.

Financial advisory revenue is $ 1.12 billion.

“The increase in net income for underwriting was due to significantly higher net income in both equity underwritings, driven primarily by strong initial public offering,” the bank said in its release. “The increase in financial advice net income reflects a significant increase in completed mergers and acquisitions.”

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

In its Global Markets unit, retailers generated revenue of 47% from a year earlier to $ 7.58 billion. The amount is split between $ 3.89 billion in fixed income trading and $ 3.69 billion in equities, reflecting year-on-year growth of 31% and 68% respectively.

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

Of the six largest U.S. banks, Goldman derives most of its revenue from Wall Street activities, including commercial and investment banking services. Over the past few years, this has been a disadvantage for the business, as retail banking fueled by cheap consumer deposits has driven the industry’s record profits.

This dynamic was reversed during the coronavirus pandemic, when companies with significant consumer operations had to set aside ten billion dollars for the expected loan losses, which caused banks like Wells Fargo to have their first quarterly loss since the financial crisis.

Goldman shares rose 24% this year, roughly in line with the gains of the KBW Bank index.

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