On the surface Goldman's earnings, which just hit the tape at $2.88/share [4], and which beat expectations of $2.47 - higher than the $2.85 from a year ago - were far better than some of the worst case expectations. That is, until one actually looks at how they were derived. Sadly for Goldman's employees, the EPS beat was not due to a rise in actual revenues, which missed expectations of $7.35 billion massively, printing at $6.72 billion and down 20% from a year ago, but due a slashing in compensation expenses, which were brutalized from $3.7 billion in Q3 2013 and Q2 2013, to "only" $2.4 billion, a 35% Y/Y drop!
But back to revenue, which was an unmitigated disaster: the only bright light were Investment banking revenues which were $1.7 billion, unchanged from a year ago, if down 25% from Q2. It's all downhill from here, because the all important Fixed Income, Currency and Commodities group printed just $1.247 billion, down a whopping 44% Y/Y, well below expectations, followed by a tumble in Equity Client Flow, which at $1.6 billion, was down 18% from a year earlier. Alas not even Goldman was spared from the Q3 crunch, as both trading volumes appear to have tumbled, as well as actual prop misses impacted revenue. This can be seen in the firm's prop trading group, aka Investment and Lending, which printed at $1.5 billion down 18% from a year ago.
All in all, this was the worst quarter for Goldman's non-prop operations since Q4, and even so it was it was barely better by about $50 million.
[5]
What is notable, is that unlike other banks, where CEOs and CEOs can take reseve releases to offset cratering revenues, for Goldman this was not an option and the only way the bank could beat EPS was by actually slashing employee comp: that good old margin management tool. Sure enough, in Q3 the compensation margin tumbled to just 35.4%, well below the 44% average, and the lowest since the negative comp margin Goldman took in Q4 2009 when it was once again so desperate to beat EPS, it actually docked from employee comp accruals.
So much for any hopes that tapering, and a market in which only HFTs are left trading, can be navigated by even the best Wall Street Hedge Fund, pardon, Bank Holding Company.