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Robust Investment Banking to Aid Goldman's (GS) Q1 Earnings

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Investment banking (“IB”) fees, one of the main sources of revenues for Goldman (GS - Free Report) , is expected to have witnessed a significant rise in first-quarter 2021. Thus, this is likely to provide much needed support to the bank’s results, slated to be announced on Apr 14.

IB income basically comprises advisory fees (generated from M&As and business restructuring) and underwriting revenues (equity and debt). Let’s check how these are likely to have been in the to-be-reported quarter.

After an impressive second-half 2020 performance, the momentum in the deal making activities continued in the quarter under review as well on the back of extensive vaccination drives, a brighter macroeconomic outlook and lower interest rates. During the first quarter, the number of announced M&As jumped. Though the deal volume didn’t show much improvement, the total value of pending/completed transactions rose drastically. Also, the bank’s leadership in the space is likely to have offered some leverage.

Also, in light of the pandemic, many companies began business restructuring process with an aim to maintain profitability. This is likely to have boosted Goldman’s advisory fees.

Further, global IPO activity was robust and witnessed proceeds of record levels. A number of tech and healthcare firms, along with Special Purpose Acquisition Companies, entered the markets. Additionally, driven by favorable markets, several companies shored up their balance sheets through follow-up equity issuances.

Likewise, bond issuance volume has been strong in the first quarter along with decent growth in debt issuances. Hence, Goldman’s equity underwriting fees and debt origination fees (accounting for almost 65% of total IB fees) are expected to have increased in the quarter.

The consensus estimate for IB fees of $2.9 billion indicates 10.9% sequential growth.

Q1 Earnings & Sales Projections

The Zacks Consensus Estimate for Goldman’s earnings for the first quarter is pegged at $9.52, which indicates a substantial rise from the prior-year reported number. The consensus estimate for sales of $11.5 billion suggests 31.5% growth on a year-over-year basis.

Apart from trading revenues, a few other factors are likely to have impacted Goldman’s overall performance during the first quarter.

Our Take

During the first quarter, the operating backdrop showed some improvement. Though weak loan demand and low interest rates are likely to have hurt this Zacks Rank #1 (Strong Buy) company’s top-line growth to some extent, solid IB performance, along with robust trading performance, might have offered support.

You can see the complete list of today’s Zacks #1 Rank stocks here.

IB Performance Expectations for Other Players

Among other companies, IB revenues are a major portion of total revenues for Bank of America (BAC - Free Report) , JPMorgan (JPM - Free Report) and Morgan Stanley (MS - Free Report) . Similar to Goldman, IB performance is likely to have supported the banks’ revenues and earnings in the first quarter.

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