Goldman Reports Blowout Earnings: Q1 Turmoil Leads To Highest Revenue In 3 Years

If there is anything the recent reports from money center banks showed, it was the the February volatility surge was a gift to bank equity trading desks, which is why Wall Street was eagerly anticipating this morning's Goldman Sachs results to see how much the "cleanest" trading desk on Wall Street would benefit from the turmoil in Q1.

It was not disappointed, because moments ago Lloyd Blankfein, in one of his last quarters as Goldman CEO, reported results that blew expectations out of the water.

Goldman reported net earnings of $2.83 billion, transalating into EPS of $6.95, far above the $5.58 consensus estimate, which however was largely driven by the plunge in the company's tax rate. This was a 15.4% annualized ROE. This is what Goldman said on the matter:

The effective income tax rate for the first quarter of 2018 was 17.2%, down from the full year rate of 61.5% for 2017, as 2017 included the estimated impact of Tax Legislation, which increased the firm’s effective income tax rate by 39.5 percentage points.

So to avoid the noise from the swing in the tax rate, we looked simply at the top line and it was here that Goldman truly shone, reporting total Q1 revenue of $10.04BN, up 25% Y/Y and not only smashing consensus expectations of $8.74BN, but above the highest Wall Street estimate, mostly thanks to equity trading and its prop desk.

Here are the standouts:

  • Equities sales & trading revenue $2.31 billion, estimate $1.85 billion, up 38% from $1.67 billion
  • Trading revenue $4.39 billion, estimate $3.89 billion, and up 31% from $3.36 billion
  • Investing and Lending (Prop) revenue $2.087 billion, up 43% from $1.464 billion

Here is how Goldman's breakdown of its institutional client services revenue:

Net revenues in Institutional Client Services were $4.39 billion for the first quarter of 2018, 31% higher than the first quarter of 2017 and 85% higher than the fourth quarter of 2017.

Net revenues in Fixed Income, Currency and Commodities Client Execution were $2.07 billion, 23% higher than the first quarter of 2017, due to significantly higher net revenues in currencies, commodities and credit products, partially offset by lower net revenues in interest rate products and mortgages. During the quarter, Fixed Income, Currency and Commodities Client Execution operated in an environment characterized by improved market-making conditions and higher client activity compared with the fourth quarter of 2017.

Net revenues in Equities were $2.31 billion, 38% higher than the first quarter of 2017, primarily due to significantly higher net revenues in equities client execution, reflecting significantly higher results in both derivatives and cash products. In addition, commissions and fees were higher, reflecting higher market volumes, and net revenues in securities services were higher, reflecting higher average customer balances. During the quarter, Equities operated in an environment characterized by periods of high volatility and an increase in client activity compared with the fourth quarter of 2017

On the other hand, both investment banking ($1.79 billion, vs est $1.71 billion) and FICC sales & trading ($2.07 billion, est $2.04 billion) failed to make a notable mark, just barely beating estimates, in line with results previously reported by both JPM and BofA.

Here is Goldman's breakdown of its results:

This is how the outlier quarter looked like in context - the best since Q1 2015.

Is the downward slope in Goldman revenue finally over? Perhaps, but we will need to see a sustained increase in vol for that to be the case.

Also notable: Goldman boosted its comp 50 $4.1 billion, or a 41% compensation ratio. The result was an average compensation of $340,000 for the average Goldman employee (of which the company had 37,300 in Q1, an increase of 700 from the previous quarter).

As Goldman notes, "the accrual for compensation and benefits expenses (including salaries, estimated year-end discretionary compensation, amortization of equity awards and other items such as benefits) was $4.12 billion for the first quarter of 2018, 25% higher than the first quarter of 2017, reflecting a significant increase in net revenues. The ratio of compensation and benefits to net revenues for the first quarter of 2018 was 41.0%, unchanged compared with the first quarter of 2017. Total staff increased 2% during the first quarter of 2018."

What is odd is that judging by how Goldman stock is trading on the news - i.e. barely higher - not even this blowout quarter may have been enough for the market...

Comments

brian91145 Tue, 04/17/2018 - 08:03 Permalink

Here's the truth: the USA is a privately owned corporation run under admiralty/ maritime law, and all money is debt issued by (them) . In 1933 the USA went bankrupt and they pledged the US citizens as the collateral to the banksters. You have a personal collateral account at the FED issued to you by birth that the banks trade with each other; it's yours time to use it! Look into "heather Ann Tucci" and "Jordan Maxwell" it's time to wake up people; we are not enemy's to each other. Let's finally escape the matrix that we (to no fault of our own) were born into. Please copy and share this massage with everyone!

SubjectivObject Tue, 04/17/2018 - 08:29 Permalink

their fucking suckcess is based on fucking inside timing information direct from the highest levels of policy making

and ((they're)) proud of ((their)) connections and that suckcess

JelloBeyonce Tue, 04/17/2018 - 09:07 Permalink

I recently traveled across the U.S., stopping in several large/major cities across the nation.  With few exceptions, I observed a nation of mostly angry, stressed, miserable citizens, people so busily trying to keep pace (or desperately trying to avoid falling too far behind), that they are completely devoid of time for leisure, thought, enjoyment. 

 

We're continually being told that the U.S. economy has not only rebounded, but is "thriving", with "abundant" jobs, "record-low unemployment", blah, blah, blah......yet the only ones seemingly benefiting from this "recovery" are the big bankers, and the largest corporations (and their handlers, the largest money-management firms, whom have created virtual monopolies via large stock holdings among supposedly "competing" corporations in most every industry).

These "record gains" are seemingly not translating to prosperity for the nation, nor its citizens, as a whole.  People may be spending more, but it's mostly debt-fueled spending, debt that's keeping people further enslaved, causing greater stress, more unhappiness, etc.

This is the neo-feudal world that has enveloped the U.S. (and likely many other nations).

The neo-feudal Lords, whom effectively own & control most everything, also own the media (and in turn, the "facts" that other independent outlets simply report) and have been effectively using it to convince everyone that "things are great", when in fact they're miserable.  This is called spin.

 

Biggest problem is, these tensions are compounding.  Which is likely why we're seeing so much turmoil across the world.  Before every period of great wars, you will find rising tensions among the citizens of nations.

 

Interestingly, the same feudal Lords, and their mega-corporations and big banks, are those whom profit the most from the resulting wars caused by these rising global tensions (refer to fmr. Major Gen. Smedly Butler's "War is a racket").

Almost like the whole situation is created intentionally.  Profits above all else.

J J Pettigrew Tue, 04/17/2018 - 09:25 Permalink

I'm so happy for Goldman Sachs.

This Trump presidency has really worked out for them....

eventhough Trump railed against the Goldman oligarchy during his campaign he somehow ended up

hip deep in Goldman folk.

How do they do it?  It seems like only yesterday they were broke and had to switch, mid stream, from an investment bank to a commercial bank to get special treatment....are they an investment bank again, yet?

CashMcCall Tue, 04/17/2018 - 11:03 Permalink

LOL how can you miss... Schwartzman and Goldman's equities trading read Trump Perfectly as if they knew in advance. Trump has 6 Goldman execs in his administrations. LOL no wonder Cohn said "Thank you" when he left.