BUSINESS Goldman trumps profit estimates as bond trading shines

BUSINESS

Goldman trumps profit estimates as bond trading shines

Reuters

05:04, April 18, 2018

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A Goldman Sachs sign is displayed inside the company's post on the floor of the New York Stock Exchange (NYSE) in New York, US, April 18, 2017 (Photo: Reuters)

Goldman Sachs Group Inc (GS.N) blew past Wall Street’s expectations for quarterly profit on Tuesday, as volatility in global markets powered a surge in bond and stock trading.

The bank’s bond trading business outperformed, with revenue rising 23 percent in the first quarter.

Overall revenue from trading - Goldman’s biggest business - was up 30.5 percent as volatility rocked global markets in February after a prolonged calm in 2017, roiling stocks, bonds, currencies and commodities, and remained elevated through the end of March.

The bank’s shares rose 1.4 percent to $261.28 in early trading.

Total revenue, including net interest income, rose 25 percent to $10.04 billion, with all four businesses recording a rise in revenue.

Evercore ISI analyst Glenn Schorr described the $1.8 billion-$2.3 billion in revenue Goldman generated from each of its business units as “pretty impressive.”

“Obviously it won’t always be this good, but sure is cool to see a good old Goldman beat in a quarter that was far from the perfect backdrop,” he wrote in a note to clients.

Following last year’s sharp fall in bond trading, the bank laid out a growth plan to add as much as $5 billion in revenue annually by courting asset managers and banks to trade with the firm, expanding its footprint with corporate clients particularly in commodities and currencies, lending more to clients, and hiring more trading talent.

Chief Financial Officer Marty Chavez said the lender’s management was “cautiously optimistic” that the factors leading to outperformance in the first quarter would continue.

The plan to generate more revenue by luring new clients and offering more products and services should provide an added lift, he said.

Net income applicable to common shareholders rose 27 percent to $2.74 billion, or $6.95 per share, and blew past the average analyst estimate of $5.58 per share, according to Thomson Reuters I/B/E/S.

Investing and lending revenue rose 43 percent, while revenue from investment banking, which includes underwriting fees, rose 5.3 percent.

The lender’s return on equity was 15.4 percent. Analysts typically like to see banks produce returns of at least 10 percent to meet their cost of capital.

Goldman’s arch rival Morgan Stanley (MS.N) is scheduled to report quarterly results on Wednesday.

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