Goldman Sachs reported first-quarter results on Monday that beat expectations due to record equity trading results and higher-than-expected investment banking revenues.
Here’s what the company reported:
- Earnings: $17.55 per share versus an LSEG estimate of $16.49
- Revenue: $17.23 billion versus expected $16.97 billion
The bank said profit rose 19% from the year-earlier quarter to $5.63 billion, or $17.55 per share. Revenue rose 14% to $17.23 billion.
Wall Street trading floors were busy at the start of the year as institutional investors took new positions against the turbulence of market disruption caused by artificial intelligence. This was Goldman’s biggest quarter in stock trading, helping the company as a whole have its second-highest quarterly revenue.
Stock earnings rose 27% to $5.33 billion, about $420 million higher than StreetAccount’s estimate, due to increased funding activity for hedge fund clients in the prime brokerage business as well as the matching of more buyers and sellers in cash equity products.
Investment banking fees rose 48% to $2.84 billion, about $340 million more than expected, driven by an increase in advisory revenue from completed merger transactions. The company also cited higher equity and debt revenues.
But the company’s fixed income business didn’t fare so well. Sales there fell 10% to $4.01 billion, an unusually large $910 million shortfall from StreetAccount’s estimate. Goldman cited “significantly lower” revenues in interest rate products, mortgages and loans for the results.
The company’s wealth management division reported a 10% jump in revenue to $4.08 billion in the quarter. However, this was approximately $140 million below expectations as higher management fees due to increasing assets under management were partially offset by lower private banking revenues.
Goldman’s provisions for loan losses rose nearly 10% from a year ago to $315 million, or more than double the StreetAccount estimate of $150.4 million, due to loan growth and wholesale loan impairments.
It was the largest increase in loan loss provisions since 2020, raising questions about what Goldman executives are seeing in credit markets, Mike Mayo, a banking analyst at Wells Fargo, said in a note Monday morning.
The bank’s shares fell nearly 2% on Monday.
A lower-than-expected tax rate, a lower compensation ratio and a larger-than-expected share buyback also contributed to the bank’s quarterly results, Jason Goldberg, banking analyst at Barclays, said in a note.
For Goldman Sachs, which derives most of its revenue from its trading and investment banking businesses, the main question analysts will be asking is the impact of the Iran war, which began on February 28.
Disruptive events that impact commodity prices – such as the Iran conflict – can sometimes sideline corporate customers, which could jeopardize future capital markets transactions such as mergers or debt issuances.
Goldman CEO David Solomon noted rising volatility “amid the overall uncertainty” of the period.
“Goldman Sachs delivered a very strong performance for our shareholders this quarter, even as market conditions became more volatile,” Solomon said in the earnings release. “The geopolitical landscape remains very complex – therefore disciplined risk management must remain at the heart of our business operations.”
Later Monday, Solomon told analysts on a conference call that while the environment for mergers and other deals was stable, he was closely monitoring developments in the war in the Middle East.
“If the resolution of the conflict drags on, that will likely create headwinds in some of these areas, particularly inflation trends, as we move further into the second and third quarters,” Solomon said. “So we need to look into it.”
Solomon also said that market upheaval due to the war had dampened IPOs in March, but that he still saw the need for several large IPOs to be in the pipeline to hit the market.