Friday, 15 December, 2017

Goldman Sachs' profits miss forecasts as trading struggled

Record Earnings Lead To Big Bonuses On Wall Street Both JP Morgan Chase and Citigroup reported 17 per cent profit jumps for the first quarter last week
Juana Turner | 19 April, 2017, 01:28

Overall, Goldman's profit rose 80 percent to $2.2 billion from $1.2 billion in the first quarter of 2016, when sliding commodity prices, worries about the Chinese economy and uncertainty about US interest rates led to weak results across Wall Street. While JPMorgan Chase & Co. and Citigroup Inc. also reported similar results on trading. It now ranks No. 2 behind its biggest rival. The first quarter of past year was regarded as a particularly tough one for the FICC trading business, with many firms reporting disappointing earnings. That gap, which has been growing for years, has raised pressure from investors looking for answers and prompted Goldman to rethink its strategy. Shares fell almost 5% by the time the market closed in a selloff that knocked roughly $4.3 billion off the market capitalization of America's most valuable bank.

The fifth-largest USA bank by assets generated its lowest trading revenue in five quarters even as Wall Street rivals reported gains.

Profit margins have been razor-thin for some time, but the business is facing new fee pressure from struggling asset managers. Trading revenue fell 2%, and there was a 6% decline in stock trading revenue. It also popped up repeatedly in analyst notes responding to the results.

That lack of volatility meant its investor clients, many of them hedge funds, were trading less.

Goldman meanwhile began to stumble. FICC trading was flat compared with a year earlier.

Other hedge funds have also recently added to or reduced their stakes in the company. Citi, Bank of America and JP Morgan on average, 1Q FICC trading results were up about 5 percent versus 2015.

Bank of America did better, and so did Volkswagen, helped by new auto models and cost cuts.

Chief executive Brian Moynihan said the bank's results reflect the consumer and business optimism within the U.S. economy. "It's not that you can't succeed, but there is a natural first-mover advantage for firms that started investing in their low-touch platforms earlier". BAC, -0.80% which also reported quarterly results on Tuesday, posted a 22.5% increase in revenues to $4.029 billion from $3.288 billion in the first quarter of a year ago, excluding adjustments for accounting.

Puzzled analysts asked a number of FICC-related questions on Goldman Sachs' conference call, hoping to get a better explanation as to why the investment bank seemingly lost ground against its peers in the first quarter.

"The operating environment was mixed, with client activity challenged in certain market-making businesses", CEO Lloyd Blankfein said in the release.

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