Goldman Sachs reports record earnings amid booming investment banking

Goldman Sachs blew past analyst expectations on Wednesday with record first-quarter net profit and income thanks to strong performance from the company’s stock traders and investment bankers.

The bank posted earnings per share of $ 18.60, crushing the $ 10.22 estimate of analysts polled by Refinitiv, representing 498% growth over the same period a year ago. Revenue of $ 17.7 billion exceeded expectations of $ 12.6 billion and represented a growth of 102% from the first quarter of 2020.

Here are the numbers:

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

Shares of the New York-based bank rose 1.5% after its release, showing Goldman’s revenues more than doubled year-on-year in the first quarter.

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

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

At Goldman, the flood of SPACs helped drive net banking revenues to a record $ 3.77 billion for the quarter, including a record underwriting in equity. Major investment banking revenues exceeded the $ 2.9 billion estimate and represent a 73% increase from the same time last year.

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

In the Global Markets unit, traders posted a 47% increase in revenue from a year earlier to $ 7.58 billion. That amount was split between $ 3.89 billion in fixed income and $ 3.69 billion in equities, reflecting year-over-year growth of 31% and 68%, respectively. The bank said the strong growth in fixed income trading was due in part to “significantly higher” net sales from mortgages and interest rate products.

Of the six largest US banks, Goldman derives most of its revenues from Wall Street activities, including trading and investment banking. That has been a detriment to the company in recent years as retail banking fueled by cheap consumer deposits has boosted the industry’s record profits.

Those dynamics reversed during the coronavirus pandemic, when companies with extensive consumer businesses had to set aside tens of billions of dollars for expected credit losses, pushing banks like Wells Fargo to record their first quarterly loss since the financial crisis.

Goldman shares are up 24% this year, about the same as the earnings of the KBW Bank Index.

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