January 26, 2021

DealBook: Goldman Profit Reflects Bank Sector’s Strength

The headquarters of Goldman Sachs in New York.Mark Lennihan/Associated PressThe headquarters of Goldman Sachs in Manhattan.

10:01 a.m. | Updated

The spate of strong bank earnings continues.

On Tuesday, Goldman Sachs reported first-quarter profit of $2.2 billion, or $4.29 a share, driven by strength in its investment banking business as well as its investing and lending unit.

Across Wall Street, banks are showing signs of strength. Last week, JPMorgan posted a 33 percent jump in quarterly profit, to $6.53 billion. Profit at Wells Fargo rose 22 percent, to $5.17 billion. Citigroup profit surged by 30 percent while BlackRock earnings were up 10 percent.

Goldman, like other banks, is benefiting from the ongoing improvement in the markets and the economy. While banks are adjusting to new regulation, they are finding new ways to bolster profit and cut costs, helping to drive record profit.

Goldman’s results were up from the year-ago period and well ahead of analysts’ expectations of $3.89 a share, according to Thomson Reuters. Earnings per share were up 9 percent compared with the period a year earlier. Goldman shares, however, were down 2 percent in morning trading to around $143.50 a share on a day when the broader market was up.

Analysts had been anticipating a fairly decent quarter for Goldman, in part because many of its rivals have posted strong results in their investment banking and securities divisions.

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“Our strong client franchise across our businesses drove generally solid results. Still, the potential for macroeconomic instability was felt in the quarter and constrained overall corporate and investor activity. We continue to be very focused on controlling our costs and efficiently managing our capital,” Goldman’s chairman and chief executive, Lloyd C. Blankfein, said in a statement.

The firm reported $10.1 billion in revenue in the quarter ended March 31, almost flat from levels a year ago, when revenue came in at $10 billion. Analysts had been forecasting revenue of $8.35 billion.

Net revenue in Goldman’s powerful division that trades bonds, currencies and commodities was somewhat disappointing after it fell 7 percent, to $3.2 billion, from the period a year earlier. The firm said net revenues were lower in most businesses, “primarily reflecting significantly lower net revenues in interest rate products compared with a strong first quarter of 2012.”

The firm’s investing and lending operations, however, did quite well, posting revenue of $2.07 billion, up 8 percent from the period in 2012. Goldman said this unit benefited from an increase in equity prices and a $24 million gain from the firm’s stake in the Industrial and Commercial Bank of China, a strategic investment Goldman made in 2006.

Goldman’s investment banking division also weighed in with strong results, as revenue increased 36 percent, to $1.57 billion. The firm said the unit enjoyed a lift from record debt underwriting results as a result of leveraged finance and commercial mortgage-related activity. The bank added that revenue in equity underwriting was also “significantly higher compared with the first quarter of 2012, reflecting an increase in client activity.”

The firm’s annualized return on equity, a key financial measure watched by investors, was 12.4 percent in the quarter, roughly the same as it was in the year-ago period. Although the figure was not as strong as it was before the financial crisis when firms like Goldman were able to produce outsize returns by using unheard levels of borrowed money, it’s still ahead of some of the firm’s rivals.

Goldman is one of a number of Wall Street banks releasing earnings this week. Morgan Stanley will round out bank earnings season on Thursday. Analysts polled by Thomson Reuters are expecting that firm to earn 57 cents a share.

Since the financial crisis, Goldman and other firms have been working hard to cut expenses. The bank had 32,000 employees at the end of the quarter, 400 fewer than at the end of 2012.

The firm set aside $4.3 billion to pay employees, or 43 percent of its revenue, which was in line with previous quarters. The compensation amount is set aside quarterly but not paid out until the fourth quarter, when the firm’s full-year results are known.

Article source: http://dealbook.nytimes.com/2013/04/16/goldman-sachss-first-quarter-profit-beats-estimates/?partner=rss&emc=rss

Stocks & Bonds: Earnings Propel Tech, And Subdue Industrials

The broader market was up more than 2 percent for the week, largely in response to the deal European leaders reached on Greece’s debt on Thursday. For the week, the Dow Jones industrial average was up 1.6 percent. The Standard Poor’s 500-stock index rose 2.1 percent, and the Nasdaq composite was 2.4 percent higher.

On Friday alone, the Dow closed down 43.25 points, or 0.34 percent, at 12,681.16. The S. P. was up 1.22 points to 1,345.02, and the Nasdaq was up 24.40 points, or 0.86 percent, to close at 2,858.83.

Investors were also warily watching the deficit-reduction talks in Washington, where President Obama and the Republican House speaker, John A. Boehner, were trying to shape a deal and avoid a government default in less than two weeks.

Quarterly corporate earnings moved the markets on Friday. Caterpillar, which reported that second-quarter revenue was up 37 percent, said earnings per share were $1.72, slightly below expectations of $1.75, analysts noted. It also reported softening demand in China.

Caterpillar was trading about 5 percent lower through the day and closed down 5.78 percent at $105.15.

“It’s basically cause and effect,” said Lawrence Creatura, portfolio manager at Federated Investors.

Timothy Hoyle, vice president for research at Haverford Investments, said the results “disappointed the market.” But he added: “I think the market might be overreacting.”

Another major industrial company, General Electric, reported results that slightly surpassed Wall Street’s expectations in both profits and sales. G.E. stock fell 0.63 percent to $19.04.

Technology shares did well, helping to bolster the Nasdaq.

SanDisk exceeded expectations in its earnings report late on Thursday. The company said second-quarter revenue was $1.375 billion, up 17 percent from a year ago. It closed up more than 9 percent at $45.57.

Advanced Micro Devices on Thursday reported $1.57 billion revenue and net income of $61 million, or $0.08 a share. It rose more than 19 percent to close at $7.75.

Interest rates were lower. The Treasury’s benchmark 10-year note rose 14/32, to 101 12/32, and the yield fell to 2.96 percent, from 3.01 percent late Thursday.

“Debt deals in Europe, debt deals in the U.S., debt deals at home,” said Kevin H. Giddis, the executive managing director and president for fixed-income capital markets at Morgan Keegan Company, in a research note. “The potential ‘rise and fall’ of these is causing investors to take a more conservative approach on the last day of the week before what might or might not happen over the weekend.”

Financial markets in Europe on Friday continued to give a positive reception to the deal reached in Brussels by European leaders that gave Greece more time to deal with its mountain of debt. Bank stocks in particular benefited, and Greek, Irish and Spanish bonds continued to rally.

In Europe, the package of measures approved by euro zone leaders includes a reduction in interest rates for the two other bailed-out countries, Ireland and Portugal.

The Euro Stoxx 50 index of blue chips opened strongly but gave up some of its gains and ended the day up 0.3 percent. Greek 10-year yields dropped below 16 percent for the first time since June 8, sinking 137 basis points to 15.12 percent, according to Bloomberg News. Irish 10-year yields tumbled 52 basis points to 11.83 percent. Spanish 10-year bond yields fell eight basis points to 5.65 percent while yields on Italian debt of the same maturity declined eight basis points to 5.27 percent.

The euro rose against a number of currencies including the Swiss franc and the pound, but fell slightly against the dollar, to $1.4370. Analysts said a report showing German business confidence declined by more than forecast in July and was holding back stronger gains.

Article source: http://feeds.nytimes.com/click.phdo?i=45fe20e5ba1d364f3026df858765efed