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Muted Trading, IB Revenues to Ail Goldman's (GS) Q2 Earnings
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The Goldman Sachs Group, Inc. (GS - Free Report) is slated to release second-quarter 2023 earnings on Jul 19, before market open. The company is likely to have witnessed a year-over-year decline in quarterly earnings, whereas its revenues are expected to have increased.
In the last reported quarter, Goldman’s earnings surpassed the Zacks Consensus Estimate. The company’s results were adversely impacted by a slump in the investment banking (IB) business. Yet, provision benefits and strength in the consumer banking business acted as tailwinds.
Over the trailing four quarters, the company’s earnings surpassed the consensus estimate on three of the four occasions and missed once, the negative surprise being 1.94%, on average.
The Goldman Sachs Group, Inc. Price and EPS Surprise
Trading Revenues: At an industry conference,Goldman Sachs’president and chief operating officer, John Waldron, revealed that the firm expected trading revenues to decline 25% year over year in second-quarter 2023. "The macro backdrop is extraordinarily challenging,” he added. This led to sluggish capital market activity, and muted equities and fixed-income activity levels than that witnessed a year ago.
Tougher comps from the prior year are also expected to have weighed on the company’s year-over-year performance in second-quarter 2023. Rising interest rates and a rise in the commodities business due to volatile energy markets, owing to the war in Ukraine, drove higher market activity levels in second-quarter 2022. This propelled revenues in market-oriented businesses.
IB Fees: Global deal-making continued to shrink on a year-over-year basis in the second quarter, whereas green shoots were visible toward the end of the quarter. A host of factors like geopolitical tensions, stand-off over the U.S. debt ceiling, inflation, rising interest rates and fears of a global recession acted as major headwinds.
Thus, the deal volume and total value numbers crashed in the second quarter. Therefore, Goldman’s advisory fees are expected to have been hurt in the June-ended quarter.
The Zacks Consensus Estimate for second-quarter 2023 IB fees of $1.57 billion indicates an 11.8% decline from the prior-year quarter. Our estimate for IB fees is pinned at $1.75 billion.
Net Interest Income (NII): Banks’ lending activities declined in the second quarter, with the Federal Reserve’s latest data indicating that the demand for commercial and industrial loans was soft in April and May, whereas real estate loans and consumer loans (specifically credit cards) witnessed decent demand.
Continuing with its efforts to curb persistent inflation, the Fed raised the interest rates by another 25 basis points in May before pausing the hike in the June FOMC meeting. The policy rate is now at a 15-year-high of 5-5.25%. This is likely to have had a favorable impact on GS’ NII. Notably, the Zacks Consensus Estimate for total net-interest income is pegged at $1.92 billion, indicating a year-over-year rise of 11%. Our estimate for the same is pinned at $1.95 billion.
However, the inversion of the yield curve in the June-ended quarter and higher deposit costs are likely to have weighed on the total net-interest income to some extent.
Also, the company has been making efforts to narrow its consumer businesses and cease unsecured loan offerings to consumers through Marcus. In the first quarter of 2023, the firm sold $1 billion of Marcus loans and transferred the remaining $2.88-billion loans to be held for sale. As a result, the firm incurred a loss of $470 million in net revenues. This trend is expected to have continued in second-quarter 2023 and reduce NII from Platform Solutions.
In April 2023, the company announced that it was initiating a process to explore the sale of GreenSky. GS expects to book a $500-million goodwill impairment in the second quarter related to the sale.
Expenses: Goldman’s investments in technology are anticipated to have led to a rise in costs in the to-be-reported quarter. Also, an increase in transaction-based expenses due to higher client activity and inflationary pressure across most expense lines is expected to have affected earnings.
Moreover, the company’s European unit — Goldman Sachs Bank Europe SE — was fined an administrative penalty of €6.63 million in the second quarter by the European Central Bank for credit risk reporting errors and miscalculating its risk weighted assets. This is expected to have increased litigation expenses for the company.
What Our Model Predicts
Our proven model does not show that Goldman has the right combination of the two key ingredients — positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Goldman is 0.00%.
Zacks Rank: The company currently carries a Zacks Rank of 3.
The Zacks Consensus Estimate for second-quarter earnings has been revised 40.8% lower to $4.53 per share over the past month. The consensus estimate suggests a 62.6% year-over-year fall.
Also, the consensus estimate of $11.96 billion for quarterly revenues indicates a 0.8% sequential rise. Our estimate for revenues is pinned at $12.8 billion.
Stocks That Warrant a Look
First Citizens BancShares, Inc. (FCNCA - Free Report) and Byline Bancorp, Inc. (BY - Free Report) are a couple of stocks, which have the right combination of elements to post an earnings beat this time around.
It is slated to report second-quarter 2023 results on Aug 8. The Zacks Consensus Estimate for FCNCA’s second-quarter earnings has moved 4.3% south over the past 30 days.
BY is scheduled to release second-quarter 2023 results on Jul 27. It currently has an Earnings ESP of +3.59% and a Zacks Rank of 3. The Zacks Consensus Estimate for BY’s second-quarter earnings has been unchanged over the past 60 days.
Image: Bigstock
Muted Trading, IB Revenues to Ail Goldman's (GS) Q2 Earnings
The Goldman Sachs Group, Inc. (GS - Free Report) is slated to release second-quarter 2023 earnings on Jul 19, before market open. The company is likely to have witnessed a year-over-year decline in quarterly earnings, whereas its revenues are expected to have increased.
In the last reported quarter, Goldman’s earnings surpassed the Zacks Consensus Estimate. The company’s results were adversely impacted by a slump in the investment banking (IB) business. Yet, provision benefits and strength in the consumer banking business acted as tailwinds.
Over the trailing four quarters, the company’s earnings surpassed the consensus estimate on three of the four occasions and missed once, the negative surprise being 1.94%, on average.
The Goldman Sachs Group, Inc. Price and EPS Surprise
The Goldman Sachs Group, Inc. price-eps-surprise | The Goldman Sachs Group, Inc. Quote
Major Factors at Play
Trading Revenues: At an industry conference,Goldman Sachs’president and chief operating officer, John Waldron, revealed that the firm expected trading revenues to decline 25% year over year in second-quarter 2023. "The macro backdrop is extraordinarily challenging,” he added. This led to sluggish capital market activity, and muted equities and fixed-income activity levels than that witnessed a year ago.
Tougher comps from the prior year are also expected to have weighed on the company’s year-over-year performance in second-quarter 2023. Rising interest rates and a rise in the commodities business due to volatile energy markets, owing to the war in Ukraine, drove higher market activity levels in second-quarter 2022. This propelled revenues in market-oriented businesses.
IB Fees: Global deal-making continued to shrink on a year-over-year basis in the second quarter, whereas green shoots were visible toward the end of the quarter. A host of factors like geopolitical tensions, stand-off over the U.S. debt ceiling, inflation, rising interest rates and fears of a global recession acted as major headwinds.
Thus, the deal volume and total value numbers crashed in the second quarter. Therefore, Goldman’s advisory fees are expected to have been hurt in the June-ended quarter.
The Zacks Consensus Estimate for second-quarter 2023 IB fees of $1.57 billion indicates an 11.8% decline from the prior-year quarter. Our estimate for IB fees is pinned at $1.75 billion.
Net Interest Income (NII): Banks’ lending activities declined in the second quarter, with the Federal Reserve’s latest data indicating that the demand for commercial and industrial loans was soft in April and May, whereas real estate loans and consumer loans (specifically credit cards) witnessed decent demand.
Continuing with its efforts to curb persistent inflation, the Fed raised the interest rates by another 25 basis points in May before pausing the hike in the June FOMC meeting. The policy rate is now at a 15-year-high of 5-5.25%. This is likely to have had a favorable impact on GS’ NII. Notably, the Zacks Consensus Estimate for total net-interest income is pegged at $1.92 billion, indicating a year-over-year rise of 11%. Our estimate for the same is pinned at $1.95 billion.
However, the inversion of the yield curve in the June-ended quarter and higher deposit costs are likely to have weighed on the total net-interest income to some extent.
Also, the company has been making efforts to narrow its consumer businesses and cease unsecured loan offerings to consumers through Marcus. In the first quarter of 2023, the firm sold $1 billion of Marcus loans and transferred the remaining $2.88-billion loans to be held for sale. As a result, the firm incurred a loss of $470 million in net revenues. This trend is expected to have continued in second-quarter 2023 and reduce NII from Platform Solutions.
In April 2023, the company announced that it was initiating a process to explore the sale of GreenSky. GS expects to book a $500-million goodwill impairment in the second quarter related to the sale.
Expenses: Goldman’s investments in technology are anticipated to have led to a rise in costs in the to-be-reported quarter. Also, an increase in transaction-based expenses due to higher client activity and inflationary pressure across most expense lines is expected to have affected earnings.
Moreover, the company’s European unit — Goldman Sachs Bank Europe SE — was fined an administrative penalty of €6.63 million in the second quarter by the European Central Bank for credit risk reporting errors and miscalculating its risk weighted assets. This is expected to have increased litigation expenses for the company.
What Our Model Predicts
Our proven model does not show that Goldman has the right combination of the two key ingredients — positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.
You can uncover the best stocks before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Goldman is 0.00%.
Zacks Rank: The company currently carries a Zacks Rank of 3.
The Zacks Consensus Estimate for second-quarter earnings has been revised 40.8% lower to $4.53 per share over the past month. The consensus estimate suggests a 62.6% year-over-year fall.
Also, the consensus estimate of $11.96 billion for quarterly revenues indicates a 0.8% sequential rise. Our estimate for revenues is pinned at $12.8 billion.
Stocks That Warrant a Look
First Citizens BancShares, Inc. (FCNCA - Free Report) and Byline Bancorp, Inc. (BY - Free Report) are a couple of stocks, which have the right combination of elements to post an earnings beat this time around.
The Earnings ESP for FCNCA is +3.21% and the company currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
It is slated to report second-quarter 2023 results on Aug 8. The Zacks Consensus Estimate for FCNCA’s second-quarter earnings has moved 4.3% south over the past 30 days.
BY is scheduled to release second-quarter 2023 results on Jul 27. It currently has an Earnings ESP of +3.59% and a Zacks Rank of 3. The Zacks Consensus Estimate for BY’s second-quarter earnings has been unchanged over the past 60 days.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.