Weak trading activity over the first quarter could not
stop Goldman Sachs (
) from exceeding market expectations, as the investment bank
comfortably beat revenue and earnings estimates on the back of
strong advisory and asset management fees as well as a notable
decline in operating costs. Although the $9.3 billion Goldman roped
in this quarter was a good 8% below the $10.9 billion figure it
reported over the same period last year, it must be remembered that
the prior-period results almost completely hinged on trading
revenues, whereas the bank reported a much more well-rounded
performance this time around.
Advisory & underwriting services brought in $1.78
billion in fees - the highest for a quarter since 2007 - with
M&A advisory fees contributing almost 40% of this figure. The
bank also reported record inflows of long-term assets for its
investment management business in Q1, which helped the division
report yet another strong quarterly performance.
We maintain our
$180 price estimate for Goldman's stock
, which is about 15% ahead of the current market price.
the full Trefis analysis for Goldman Sachs
FICC Trading Bolsters Top Line Despite Below Average
Goldman's FICC (fixed-income, currencies & commodities)
trading desk is its most valuable division according to our
analysis, and is responsible for more than a quarter of the bank's
total value. The division generated $2.8 billion in revenues in Q1
- almost 50% higher than the $1.9 billion figure for Q4 2013, but
14% below the $3.3 billion the unit brought in for Q1 2013 (after
adjusting for accounting gains or losses from a revaluation of its
Debt market conditions have definitely improved compared to the
second half of 2013, when the Fed's decision to taper its asset
purchase program led to decreased trading activity. But the
markets are still soft due to fears that the Fed may pull the plug
too quickly - something that explains the considerably weaker
performance this quarter when seen side-by-side with the numbers
from a year ago. As the interest rate environment stabilizes over
the coming quarters, we expect trading activity to normalize and
trading yields to climb slowly as shown in the chart below.
Investment Management Continues To Play An Important
Goldman Sachs' investment management unit is important to the
bank not just because of its growth potential, but also because it
is a stable revenue stream in a largely volatile business model.
The bank completed integrating the recently acquired stable
value asset management business from Deutsche Bank (
) this quarter - something that helped the investment bank notch
$40 billion in net inflows for the period. This took the bank's
asset base to a record $1.08 trillion at the end of the period.
Total revenues of $1.57 billion for the division were just shy of
the record figure of $1.6 billion which Goldman reported last
quarter. The shortfall can be traced back to lower
performance-based revenues in Q1 2014 ($304 million), compared to
that in Q4 2013 ($333 million).
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