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Goldman (GS) Q1 Earnings Top, Provisions Up on Coronavirus
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Goldman Sachs (GS - Free Report) reported first-quarter 2020 earnings per share of $3.11, surpassing the Zacks Consensus Estimate of $2.83. However, the bottom-line figure compares unfavorably with the earnings of $5.71 per share recorded in the year-earlier quarter.
The stock declined more than 3% in pre-market trading, reflecting investors’ disappointment with the results. Notably, the full-day trading session will display a clearer picture.
With the market volatility flaring up on the coronavirus scare, the bank’s results were aided by strong underwriting business and higher Fixed Income, Currency and Commodities Client Execution (FICC) revenues during the reported quarter. Moreover, corporate lending revenues provided some relief. In addition, wealth management and consumer banking business reported an upswing, reflecting rise in deposit balances and credit card loans.
The investment bank, nevertheless, disappointed with the rise in operating expenses and provisions. Additionally, lower financial advisory revenues, due to the decline in industry-wide completed mergers and acquisitions transactions, played spoilsport.
Notably, provisions surged due to continued pressure in the energy sector and the economic impact of the coronavirus outbreak. Further, provisions included growth in corporate loans and credit card loans, along with impact of accounting for credit losses under the CECL standard.
Revenues Down, Expenses Up
Goldman’s net revenues were down 1% year over year to $8.74 billion in the reported quarter. The revenue figure, however, beat the Zacks Consensus Estimate of $6.75 billion.
Quarterly revenues, as per business segments, are as follows:
The Global Markets division recorded revenues of $5.2 billion, up 28% year over year. This upside indicates higher net revenues in Fixed Income, Currency and Commodities Client Execution (up 33% year over year), driven by solid revenues from currencies, credit products, interest rate products and commodities, partly offset by lower revenues in mortgages. Also, FICC financing was on the upside.
Furthermore, higher equities revenues (up 22%) were recorded, backed by elevated equities intermediation and financing.
The Asset Management division recorded negative revenues of $96 million compared with the positive revenues of $1.8 billion in the prior-year quarter. This decline mainly resulted from significant net losses in lending and debt investments along with equity investments, partially mitigated by higher incentive and management and other fees.
The Consumer and Wealth Management division’s revenues of $1.5 billion came in 21% higher year over year during the March-end quarter. Increased revenues from wealth management (up 18%) and consumer banking (up 39%) resulted in this upsurge.
The Investment Banking division generated revenues of $2.2 billion, up 25% year over year. Results suggest higher underwriting revenues (up 29%), aided by elevated equity and debt underwriting revenues. Also, corporate lending surged significantly on a year-over-year basis. However, decreased financial advisory revenues (down 11%), was on the downside.
Total operating expenses flared up around 10% year over year to $6.5 billion. Rise in almost all components of expenses resulted in this upswing.
Notably, net provisions for litigation and regulatory proceedings of $184 million were recorded.
Provision for credit losses was $937 million in the first quarter, significantly up from the prior-year quarter figure of $224 million.
Strong Capital Position
Goldman displayed a robust capital position in the reported quarter. As of Mar 31, 2020, the company’s Common Equity Tier 1 ratio was 12.3% under the Basel III Advanced Approach, highlighting valid transitional provisions. The figure was down from the prior quarter’s 13.7%.
The company’s supplementary leverage ratio, on a fully phased-in basis, was 5.9% at the end of the January-March quarter, down from the prior-quarter figure of 6.2%.
Return on average common shareholders’ equity, on an annualized basis, was 5.7% in the quarter.
Capital-Deployment Update
During first-quarter 2020, the company repurchased 8.2 million shares of its common stock at an average price per share of $236.35 and a total cost of $1.93 billion, and paid around $449 million of common stock dividends.
Notably, the company has temporarily suspended share buybacks through the second quarter of 2020, following the “unprecedented challenge” from the coronavirus pandemic.
Conclusion
Goldman’s results highlight a decent quarter. Downtrend in financial advisory revenues is likely to impede revenue growth. Nonetheless, strong underwriting business and fixed income revenues are driving factors. In addition, the company’s well-diversified business, apart from its core investment banking operations, continues to ensure earnings stability.
Its focus to capitalize on new growth opportunities through several strategic investments, including the digital consumer lending platform, will likely bolster overall business growth. Nonetheless, costs rising from technology investments and market development remain near- to medium-term headwinds.
The Goldman Sachs Group, Inc. Price, Consensus and EPS Surprise
JPMorgan’s (JPM - Free Report) first-quarter 2020 earnings came in at 78 cents per share, which missed the Zacks Consensus Estimate of $1.70, thanks to a substantial rise in provisions owing to coronavirus-related concerns. The dismal performance resulted from provision builds due to deterioration in the macro-economic backdrop, losses related to funding spread widening on derivatives and bridge book markdowns. Excluding these, earnings per share amounted to $2.89.
Wells Fargo (WFC - Free Report) reported first-quarter earnings of 1 cent per share, including a reserve build of $3.1 billion and certain other items amid coronavirus scare. The Zacks Consensus Estimate for the same was pegged at 22 cents.
Results included reserve build and an impairment of securities impact of 73 cents, resulting from the economic and market conditions, along with an impact of 6 cents per share from the redemption of Series K Preferred Stock. The prior-year quarter’s earnings were $1.20 per share.
Reduced net interest income on lower rates and a disappointing fee income marred the company’s results. Notably, lower mortgage banking revenues and reduced gains on trading activities were major drags. Provisions also soared on the coronavirus crisis during the reported quarter. However, lower non-interest expenses acted as a tailwind. Further, escalation in loans and deposits reflected a strong capital position.
Among other banks, KeyCorp (KEY - Free Report) will report quarterly numbers on Apr 16.
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Goldman (GS) Q1 Earnings Top, Provisions Up on Coronavirus
Goldman Sachs (GS - Free Report) reported first-quarter 2020 earnings per share of $3.11, surpassing the Zacks Consensus Estimate of $2.83. However, the bottom-line figure compares unfavorably with the earnings of $5.71 per share recorded in the year-earlier quarter.
The stock declined more than 3% in pre-market trading, reflecting investors’ disappointment with the results. Notably, the full-day trading session will display a clearer picture.
With the market volatility flaring up on the coronavirus scare, the bank’s results were aided by strong underwriting business and higher Fixed Income, Currency and Commodities Client Execution (FICC) revenues during the reported quarter. Moreover, corporate lending revenues provided some relief. In addition, wealth management and consumer banking business reported an upswing, reflecting rise in deposit balances and credit card loans.
The investment bank, nevertheless, disappointed with the rise in operating expenses and provisions. Additionally, lower financial advisory revenues, due to the decline in industry-wide completed mergers and acquisitions transactions, played spoilsport.
Notably, provisions surged due to continued pressure in the energy sector and the economic impact of the coronavirus outbreak. Further, provisions included growth in corporate loans and credit card loans, along with impact of accounting for credit losses under the CECL standard.
Revenues Down, Expenses Up
Goldman’s net revenues were down 1% year over year to $8.74 billion in the reported quarter. The revenue figure, however, beat the Zacks Consensus Estimate of $6.75 billion.
Quarterly revenues, as per business segments, are as follows:
The Global Markets division recorded revenues of $5.2 billion, up 28% year over year. This upside indicates higher net revenues in Fixed Income, Currency and Commodities Client Execution (up 33% year over year), driven by solid revenues from currencies, credit products, interest rate products and commodities, partly offset by lower revenues in mortgages. Also, FICC financing was on the upside.
Furthermore, higher equities revenues (up 22%) were recorded, backed by elevated equities intermediation and financing.
The Asset Management division recorded negative revenues of $96 million compared with the positive revenues of $1.8 billion in the prior-year quarter. This decline mainly resulted from significant net losses in lending and debt investments along with equity investments, partially mitigated by higher incentive and management and other fees.
The Consumer and Wealth Management division’s revenues of $1.5 billion came in 21% higher year over year during the March-end quarter. Increased revenues from wealth management (up 18%) and consumer banking (up 39%) resulted in this upsurge.
The Investment Banking division generated revenues of $2.2 billion, up 25% year over year. Results suggest higher underwriting revenues (up 29%), aided by elevated equity and debt underwriting revenues. Also, corporate lending surged significantly on a year-over-year basis. However, decreased financial advisory revenues (down 11%), was on the downside.
Total operating expenses flared up around 10% year over year to $6.5 billion. Rise in almost all components of expenses resulted in this upswing.
Notably, net provisions for litigation and regulatory proceedings of $184 million were recorded.
Provision for credit losses was $937 million in the first quarter, significantly up from the prior-year quarter figure of $224 million.
Strong Capital Position
Goldman displayed a robust capital position in the reported quarter. As of Mar 31, 2020, the company’s Common Equity Tier 1 ratio was 12.3% under the Basel III Advanced Approach, highlighting valid transitional provisions. The figure was down from the prior quarter’s 13.7%.
The company’s supplementary leverage ratio, on a fully phased-in basis, was 5.9% at the end of the January-March quarter, down from the prior-quarter figure of 6.2%.
Return on average common shareholders’ equity, on an annualized basis, was 5.7% in the quarter.
Capital-Deployment Update
During first-quarter 2020, the company repurchased 8.2 million shares of its common stock at an average price per share of $236.35 and a total cost of $1.93 billion, and paid around $449 million of common stock dividends.
Notably, the company has temporarily suspended share buybacks through the second quarter of 2020, following the “unprecedented challenge” from the coronavirus pandemic.
Conclusion
Goldman’s results highlight a decent quarter. Downtrend in financial advisory revenues is likely to impede revenue growth. Nonetheless, strong underwriting business and fixed income revenues are driving factors. In addition, the company’s well-diversified business, apart from its core investment banking operations, continues to ensure earnings stability.
Its focus to capitalize on new growth opportunities through several strategic investments, including the digital consumer lending platform, will likely bolster overall business growth. Nonetheless, costs rising from technology investments and market development remain near- to medium-term headwinds.
The Goldman Sachs Group, Inc. Price, Consensus and EPS Surprise
The Goldman Sachs Group, Inc. price-consensus-eps-surprise-chart | The Goldman Sachs Group, Inc. Quote
Currently, Goldman carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Banks
JPMorgan’s (JPM - Free Report) first-quarter 2020 earnings came in at 78 cents per share, which missed the Zacks Consensus Estimate of $1.70, thanks to a substantial rise in provisions owing to coronavirus-related concerns. The dismal performance resulted from provision builds due to deterioration in the macro-economic backdrop, losses related to funding spread widening on derivatives and bridge book markdowns. Excluding these, earnings per share amounted to $2.89.
Wells Fargo (WFC - Free Report) reported first-quarter earnings of 1 cent per share, including a reserve build of $3.1 billion and certain other items amid coronavirus scare. The Zacks Consensus Estimate for the same was pegged at 22 cents.
Results included reserve build and an impairment of securities impact of 73 cents, resulting from the economic and market conditions, along with an impact of 6 cents per share from the redemption of Series K Preferred Stock. The prior-year quarter’s earnings were $1.20 per share.
Reduced net interest income on lower rates and a disappointing fee income marred the company’s results. Notably, lower mortgage banking revenues and reduced gains on trading activities were major drags. Provisions also soared on the coronavirus crisis during the reported quarter. However, lower non-interest expenses acted as a tailwind. Further, escalation in loans and deposits reflected a strong capital position.
Among other banks, KeyCorp (KEY - Free Report) will report quarterly numbers on Apr 16.
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This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
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