After JPM and Bank of America, the institutional trading persists, and nowhere was it clearer than in the results of the biggest FDIC-insured hedge fund, Goldman Sachs, which moments ago reported Q1 EPS of $1.98, far below the expected $3.96, however the reason for the miss is because Goldman took a whopping $1.45 billion, or $2.77 per share, litigation provisions in the quarter up nearly five times compared to a year ago, suggesting Goldman is bracing for some serious government lawsuits. This is what Goldman said on this topic [7]:
The increase in non-compensation expenses compared with the second quarter of 2014 was due to significantly higher net provisions for mortgage-related litigation and regulatory matters, which are included in other expenses. Net provisions for litigation and regulatory proceedings for the second quarter of 2015 were $1.45 billion compared with $284 million for the second quarter of 2014.
Adding the litigation charge to the bottom line nets $4.75 which was a beat to expectations, as was the company's top line, as Q2 revenue printed at $9.1 billion, above the $8.7 billion expected.
Overal good results, and yet it was the internals that suggested not all is well, with the all important revenue driver for Goldman, FICC, tumbling 28% from $2.2 billion a year ago to $1.6 billion, below the $2.1 billion consensus estimate. However, just like with JPM and BofA the decline in fixed income results was offset by an increase in Institutional Equity flow, which rose to $2 billion, above the $1.7 billion expected, surely as a result of the surge in Chinese trading in the quarter.
And the bigest wildcard, as usual, was Goldman's prop group (investing and lending) which in the quarter generated a whopping $1.8 billion, the highest since this time last year.
[8]
It wasn't just the massive litigation provision that hinted it may not be all smooth sailing for the hedge fund that has spawned more central bankers in recent years than any other: the company (which unlike all other banks on Wall Street has been adding headcount and now has 34,900 employees) took only $3.8 billion in compensation benefit accruals in the quarter, which means that its LTM comp divided by the total number of employees, or average compensation per banker, dropped once again, this time to "only" $373,181 - the lowest acrrual in three years.
[9]
