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Goldman Sachs misses estimates on weak trading, shares drop
[NEW YORK] Goldman Sachs Group Inc reported earnings that missed Wall Street expectations on Tuesday as weak trading revenue outweighed gains in other areas.
The fifth-largest US bank by assets generated its lowest trading revenue in five quarters even as Wall Street rivals reported gains. It blamed weakness in commodities, currencies, and credit revenue, as well as lower commissions and fees from equities trading.
Overall, Goldman's trading revenue, its biggest contributer to total revenue, dropped 2 per cent to US$3.36 billion. Equities trading revenue fell 6 per cent while fixed income trading was essentially flat, though analysts were more disappointed in that business relative to their expectations.
Goldman's profit rose from a difficult year-ago quarter, with earnings per share of US$5.15 versus US$2.68 in the first quarter of 2016. But the results were well short of analyst forecasts of US$5.31 per share, on average, according to Thomson Reuters I/B/E/S.
"It sounds like they had a tough time navigating ... in 1Q,"said Evercore ISI analyst Glenn Schorr. "Isn't good and it happens every once in a while for Goldman, but definitely not the norm." Goldman's results stood in sharp contrast to other big US banks that have reported earnings so far. Bank of America Corp beat expectations on Tuesday due to surge in trading revenue, similar to results from JPMorgan Chase & Co and Citigroup Inc last week. Goldman's chief rival Morgan Stanley will report on Wednesday.
Goldman has historically relied more on trading than other big banks, but has been trying to shift to more stable businesses like investment management and lending.
In a statement, Goldman Chief Executive Lloyd Blankfein described the business environment as "mixed" with client activity "challenged." Revenue from investment banking, investment management and investing and lending all rose in the first quarter, but not enough to offset the sharp decline in trading.
Overall, Goldman's profit rose 80 per cent to US$2.2 billion from US$1.2 billion in the first quarter of 2016, when sliding commodity prices, worries about the Chinese economy and uncertainty about US interest rates led to weak results across Wall Street. Its revenue rose 27 per cent to US$8 billion from US$6.3 billion.
The bank's expenses rose just 15 per cent and it paid out a smaller share of its revenue to employees. Its closely watched compensation-to-revenue ratio was 41 per cent in the first quarter, down from 42 per cent a year earlier, but higher than the 38 per cent ratio it reported for all of 2016.