While most analysts and traders were digging through Goldman's stronger than expected Q1 earnings report which beat on revenue and EPS, and despite some weakness in investment banking more than redeemed itself with stellar FICC numbers, thanks this time to the Commodity not Credit "C"...
... which sent Goldman stock higher, for the third quarter in a row there was troubling disclosure in the bank's Asset Management division (also called Goldman Prop, but not really since banks aren't technically allowed to have prop trading any more).
Here, after a very disappointing Q3 which saw a $820 million loss from the trade of public equities, and a similarly disappointing Q4 where the trade of public stocks led to another loss, this one for $500 million...
... In Q1 we have seen a continuation of this bizarre underperformance, with the bank reporting that net revenues in "Asset Management" cratered 88% from a year ago to just $546 million, down from $4.6 billion a year ago.
According to Goldman's investor presentation, for the third quarter in a row, "equity investments net losses reflected significant mark-to-market net losses from investments in public equities."
Goldman further breaks down the equity revenue, and notes that whereas investments in private equity brought in a paltry $255 in Q3, down bigly from the massive $2.78 billion profit a year ago, public equities actually led to a $500 million loss in Q3, the third consecutive loss in a row!
Surely someone on the Goldman call will ask the bank's resident DJ (and occasional CEO) how the world's most powerful trading floor has been unable to make money trading stocks in the past 9 months - was the company just blindingly following David Kostin's "buy everything" advice (which has been aggressively trimmed in recent weeks) - although we doubt it.
Don't feel too bad looking at your P&L: Goldman lost another $620MM in Q1 trading stonks (after losing half a bill in Q4)— zerohedge (@zerohedge) April 14, 2022
But if they don't ask about how Goldman lost almost two billion trading stocks in the past three quarters, surely someone will ask why the bank keeps dumping stocks, pardon "harvesting" gains, hand over fist. After all, this is the fourth quarter in a row this has taken place.
Recall, three quarters ago we reported that "Goldman Has "Aggressively" And Quietly Liquidated A Quarter Of Its Equity Investments" showing that "having started the year with a $20BN equity portfolio which has enjoyed a $5BN increase in market prices, Goldman dumped a whopping $5.5 billion of its equity assets so far (excluding a modest $1.5BN in purchases) or more than a quarter of its entire portfolio as of Dec 31. "
Then, two quarters ago the infamous "harvesting" slide was back if with some adjustments. First, Goldman no longer used YE20 as the starting point for its asset sales bridge, and instead has picked YE19 as the starting reference. Back then the bank had some $22 billion in equity investments, $2BN more than the $20BN at YE 20. What we also found is that unlike Q2, when the bank showed it has sold a whopping $5.5BN in stocks in the first half of 2021 (excluding a modest $1.5BN in purchases), this time the bank went even bolder and sold a total of $16 Billion (presumably split between equities and debt, although whoever did the chart forgot to add the table). This number was offset by $5 billion in equity additions, for a total Net Dispositions amount of $11 billion, or "harvesting" since the bank's 2020 Investor Day.
One quarter ago, the "Harvesting Progress" slide again made an appearance and show that the bank sold an additional $2BN gross in Q4 (the dispositions number since YE19 rose from $16BN to $18BN), offset by an incremental $1BN in purchases ($6BN in Q4, up from $5BN in Q3). In other words, all else equal (and as the slides above and below show that's more or less the case), Goldman liquidated, pardon "harvested" an additional gross $2BN in Q4 offset by $1 billion in the bank's equity portfolio, for a total Net Dispositions amount of $12 billion, or "harvesting" since the bank's 2020 Investor Day (up from $11 billion last quarter).
So fast forward to today, when the "Harvesting Progress" is ever present, shows that the bank continued to sell even more stock, and in the first quarter, sold an additional $1BN gross (the dispositions number rose from $18BN to $19BN), offset by an incremental $1BN in purchases ($7BN in Q1, up from $6BN in Q4). Said otherwise, Goldman liquidated an additional gross $1BN in Q1, offset by $1BN in additions, for a new and improved "net dispositions" of $12 billion however due to the broader decline in the market, the mark ups since Year End 2019 declined from $9BN to $8BN, and a net notional of $18 billion in equity investments at the end of Q1 2022.
Who is Goldman selling to? Anyone who will buy, but here we would wager that retail investors - who were on tilt buying in 2021 - have been the proud recipients of billions in Goldman sales, especially those reading the permabullish notes from Goldman's chief equity strategist David Kostin (curiously, Goldman's "harvesting" asset management group did not get access to those). This, in the financial literature is called the "distribution phase" or was until Kostin had no choice but to trim his year-end S&P price target from 5,100 to 4,900 and then to 4,700.
And so, with the investor call now over, unfortunately there was no discussion of the bank's stock sales, pardon harvesting for the second quarter in a row. At least three quarters ago some analyst asked a question about Goldman's efforts to reduce its equity investment portfolio, to which the bank said that it it has "made progress on improving its capital efficiency and is moving 'aggressively' to manage equity positions, especially since the environment is supportive."
What does that mean in English? Simple: in Q1, Goldman continued to "aggressively" dump its positions which are in the money in an environment that is "supportive", i.e., in which the dumb money is providing a constant bid into which whales such as Goldman can sell.
The last time Goldman was "aggressively" selling into a "supportive" market? Well, we have to go back all the way to 2007 and 2008 when Goldman was busy creating the very CDOs which its prop desk would then "aggressively" short. We all remember how prophetic that particular move turned out to be.