There was some hope that after a better than expected result from JPM and, to a lesser extent MS and WFC, that Goldman would surprise to the upside. That did not happen even though the company moments ago reported EPS of $2.68 beating expectations of $2.48, which nonetheless was a 55% plunge in earnings from a year ago.
But the real story was in the company's revenue which printing at $6.4 billion was not only a huge miss to expectations of $6.7 billion, but a massive slide of 40% from Q1 2015 driven by top-line weakness across the board. This was the worst revenue quarter for Goldman since Q4 2011.
As the chart below shows, revenues declined in virtually all groups, with the all important FICC plunging 47% to $1.663 billion, Investment Banking down 23% to $1.46 billion, Equity trading down 23% to $1.78 billion. Goldman's explanation:
Net revenues in Fixed Income, Currency and Commodities Client Execution were $1.66 billion for the first quarter of 2016, 47% lower compared with a strong first quarter of 2015. During the first quarter of 2016, Fixed Income, Currency and Commodities Client Execution operated in a challenging environment characterized by economic uncertainty and difficult market-making conditions, which resulted in significantly lower net revenues across all major businesses compared with the first quarter of 2015.
Net revenues in Equities were $1.78 billion for the first quarter of 2016, 23% lower than the first quarter of 2015, due to significantly lower net revenues in equities client execution compared with a strong first quarter of 2015. The decrease in equities client execution reflected significantly lower net revenues in both cash products and derivatives. These results were partially offset by higher commissions and fees, reflecting higher volumes in the United States, and higher net revenues in securities services, reflecting improved spreads. During the quarter, the operating environment for Equities was impacted by economic uncertainty, which contributed to higher levels of volatility and generally lower global equity prices compared with the fourth quarter of 2015.
But the biggest surprise was Goldman's prop trading group, "Investment and Lending", which plummeted 95% from $1.7 billion to just $87 million as Goldman wrote down the values of securities held on its books.
This is what Goldman said about the plunge in prop:
Net revenues in Investing & Lending were $87 million for the first quarter of 2016, significantly lower than both the first quarter of 2015 and the fourth quarter of 2015. The decrease in net revenues compared with the first quarter of 2015 was primarily due to a significant decrease in net revenues from investments in both private and public equities, which were negatively impacted by generally lower global equity prices and corporate performance during the first quarter of 2016. Net revenues in debt securities and loans were also significantly lower compared with the first quarter of 2015, primarily reflecting lower net revenues related to loans and lending commitments to institutional clients (including higher provision for losses) and lower net gains from investments
This is what Goldman's revenue has looked like this decade:
Here is Lloyd Blankfein's explanation of the abysmal results:
“The operating environment this quarter presented a broad range of challenges, resulting in headwinds across virtually every one of our businesses,” said Lloyd C. Blankfein, Chairman and Chief Executive Officer. “Looking ahead, we will continue to focus on delivering superior service to our clients and managing our business efficiently, which remain essential to generating shareholder value over the long term.”
And he quickly took it out on his employees: Goldman accrued only $2.7 billion in comp for Q1, down from $4.4 billion a year ago, which meant that the average compensation for Goldman employee (which declined once again from 36.8K to 36.5K) dropped below $300k, or $298,110 to be precise, for the first time since the crisis.