Goldman FICC Revenue Plunges 40%, Worst Since 2015, Blames "Low Client Activity"

While Goldman's overall results reported moments were generally solid, with the bank reporting Q2 revenue of $7.89 billion (exp. $7.52 billion) and net earnings of $1.83 billion, or EPS of $3.95, above the $3.39 expected, compared with $3.72 for Q2 of 2016 and $5.15 in Q1 2017, there was just one number everyone was focused on: the bank's most profitable segment, its FICC revenue, which however was painfully disappointing, at just $1.159 billion, down 40% Y/Y and roundly missing expectations of $1.47 billion, the bank's worst performance in this segment going back to Q4 2015. Also, despite the top-line beat, overall Goldman revenues were the lowest going back to Q1 2016.

Breaking down the key revenue segments:

  • 2Q trading rev. $3.05 billion, est. $3.13 billion
    • 2Q FICC sales & trading revenue $1.16 billion, est. $1.47 billion
    • 2Q equities sales & trading revenue $1.89 billion, est. $1.71 billion
  • 2Q investment banking revenue $1.73 billion, est. $1.59 billion

And visually:

Discussing the disappointing performance, Goldman said: "net revenues in Fixed Income, Currency and Commodities Client Execution were $1.16 billion for the second quarter of 2017, 40% lower than the second quarter of 2016, due to significantly lower net revenues in interest rate products, commodities, credit products and currencies, partially offset by higher net revenues in mortgages. During the quarter, Fixed Income, Currency and Commodities Client Execution operated in a challenging environment characterized by low levels of volatility, low client activity and generally difficult market-making conditions"

Offsetting the poor performance in the high-margin FICC group was the spike in equities, which however is a far lower margin segment. This is what Goldman said: "net revenues in Equities were $1.89 billion for the second quarter of 2017, 8% higher than the second quarter of 2016, primarily due to higher net revenues in equities client execution, reflecting higher results in both cash products and derivatives. Net revenues from securities services and commissions and fees were both slightly higher compared with the second quarter of 2016. During the quarter, Equities operated in an environment characterized by generally higher global equity prices, while volatility levels remained low."

Meanwhile investment banking declined once again: "Net revenues in Investment Banking were $1.73 billion for the second quarter of 2017, 3% lower than the second quarter of 2016 and 2% higher than the first quarter of 2017. Net revenues in Financial Advisory were $749 million, 6% lower than the second quarter of 2016, reflecting a decrease in industry-wide completed mergers and acquisitions. Net revenues in Underwriting were $981 million, essentially unchanged compared with the second quarter of 2016. Net revenues in debt underwriting were essentially unchanged compared with a strong prior year period. Net revenues in equity underwriting were slightly lower, reflecting lower net revenues from convertibles. The firm’s investment banking transaction backlog increased compared with both the end of the first quarter of 2017 and the end of 2016."

Two other notable highlights: 2Q compensation expenses $3.23 billion, estimate $3.13 billion; 2Q non- compensation expenses $2.15 billion.

Finally, based on the total headcount of 34,100 at the end of the quarter and calculated LTM comp accruals, the average compensation per Goldman banker dropped modestly to $357,126 from $360,000 in Q1.

 



Comments

Dewey Cheatum … Tue, 07/18/2017 - 08:18 Permalink

Volitility has died...CBs have proven over and over that they will punish all who dare to trade against them. without strong counter party short side, investment banks can't create profitable spreads.at least there's one good down side from a constantly flip flopping Fed.

TheSilentMajority Tue, 07/18/2017 - 08:24 Permalink

The big banks almost always handlily beat the street estimates.

Either the street "analysts" are completely useless fk-heads, or they are "in on it" rigging of phony lowballed estimates quarter after quarter.

Been going on a long time. The SEC needs to investigate asap.

Too-Big-to-Bail (not verified) Tue, 07/18/2017 - 08:46 Permalink

I won't be satisfied until Goldman plunges to its true value of absolutely fiat I guess they are all starting to position themselves well for the next taxpayer bailout

hooligan2009 Tue, 07/18/2017 - 09:15 Permalink

so...2q2012 revenues = around 10 billion2q2017 revenues = around 8 billionshare price movement from 2q2012 OF 100 bucks to today of 230 bucksok..that's the corruption of qe and the bullshit inclusion of companies in the Dow in a nutshell - contract revenues by 20% to increase share price by 130%oh..and how much money has been "made" via share buy-backs, squeezing shorts?BUY BACKS SHOULD BE ILLEGAL!!!

Anteater Schmuck Raker Tue, 07/18/2017 - 10:16 Permalink

We finally spotted a 1932 fixer-upper just on the market at $200 a sf!!(RING, RING)"Hello, we'd like to schedule a viewing. We might be interested in making an offer on this property.""Do you have cash?""Wait, what?""Do you have cash? I'm kinda busy."Ha, ha, ha.Fahged abahd et. $400 a sf if you're buying through the mortgage bank."Would you like mortgage insurance with that?"If this RE bubble doesn't all implode, then yes, BTC will go to $500,000.And Donald Trump IS your monkey's uncle!

In reply to by Schmuck Raker

Ink Pusher Tue, 07/18/2017 - 14:03 Permalink

RE:"Low Client Activity"Goldman has already emptied everyone's accounts and shipped the bounty offshore to create their own 'crypto settlement con game' and then has the nerve to put it on the people whose pockets they've already emptied.They've been effectively bankrupting their own clients all along.