By Saeed Azhar and Niket Nishant
NEW YORK (Reuters) -Goldman Sachs' earnings beat Wall Street estimates, boosted by a recovery in bond underwriting, deals and trading in the first quarter that lifted its earnings per share to the highest level since late 2021. The results reflected a strong recovery for investment banking – Goldman's traditional pillar – after a slowdown in the last two years.
Rivals JPMorgan Chase (NYSE and Citigroup cited improving trading conditions on Friday as they reported earnings that beat market expectations. But their executives also warned of risks to the economic outlook, including the uncertain path of rates. of American interest.
Goldman's earnings rose 28% to $4.13 billion, or $11.58 per share, in the first quarter. That was higher than the $8.56 earnings per share (EPS) that analysts were expecting.
It is the highest EPS since the third quarter of 2021, according to LSEG, and beat market estimates of a slight decline.
The bank's shares rose 5.4% in early trading. As of Friday, it had risen about 1% this year, compared with a drop of nearly 8% for rival Morgan Stanley.
It was a “near perfect impression” with most earnings drivers performing better than expected, Oppenheimer analysts led by Chris Kotowski wrote in a report.
The results could ease pressure on Chief Executive David Solomon after an ill-fated foray into consumer banking lost billions, sparking rancor and senior departures.
“A recovery may finally be underway in a range of capital market-sensitive income areas, while an exit from the unfortunate entry into consumer businesses has removed some headline risks,” said Stephen Biggar, banking analyst at Argus Research.
As a leading M&A advisor, Goldman advised on some of last year's biggest deals, including Exxon Mobile (NYSE:) purchases for 60,000 million dollars of Pioneering natural resources (NYSE:).
“We continue to execute our strategy, focusing on our core strengths to serve our customers and deliver for our shareholders,” Solomon said in a statement.
SOFT LANDING
So far, the Federal Reserve has managed to steer the economy toward a so-called soft landing, in which it raises interest rates and controls inflation while avoiding a major recession.
As corporations regain some confidence in raising money in capital markets, subscriptions to stocks and bonds have recovered. Improving conditions have also spurred companies to close more deals.
Goldman's investment banking fees rose 32% to $2.08 billion, driven by higher fees for debt underwriting and equity offerings, as well as merger advice.
Global M&A volume rose 30% in the first quarter to about $755.1 billion from a year earlier, according to data from Dealogic.
Fixed income, foreign exchange and commodities (FICC) trading revenue rose 10% to $4.32 billion, helped by record financial revenue on mortgages and structured loans.
Equity income rose 10% to $3.31 billion, but fell slightly for commodities and interest rate products.
The asset and wealth management division generated record quarterly management fees of $2.45 billion. Meanwhile, assets under supervision rose to a record $2.85 trillion, and assets of wealthy clients reached $1.5 trillion. The two companies joined as part of a reorganization in 2022.
Platform Solutions, the unit that houses some of Goldman's consumer operations, saw 24% more revenue.
Goldman is winding down its ill-fated consumer banking operations after they lost billions of dollars. He has already made large writedowns on GreenSky, a home improvement lender that he bought and sold two years later.
Solomon, who once championed the retail push, has been criticized for the strategy.
Chief proxy advisor Institutional Shareholder Services (ISS) urged shareholders to vote for the bank to split its chairman and CEO roles, which are currently held by Solomon. ISS cited its “mistakes and large losses” in a report to investors.
Goldman has also eliminated its co-branded credit cards with General Motors (NYSE:), and a similar partnership it has with tech giant Apple (NASDAQ:) faces an uncertain future.
The bank's provisions for credit losses rose to $318 million compared with a net profit of $171 million a year ago. The increase was linked to its credit cards and wholesale loan portfolio.
Goldman had a workforce of 44,400 at the end of March, down 2% from the fourth quarter. It had laid off thousands of employees in 2023, including a round of cuts in January that was the largest since the 2008 financial crisis.
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