Goldman Sachs sees much better market after bruising first quarter

[NEW YORK] Goldman Sachs reported a sharp decline in first-quarter earnings Tuesday, but gave a fairly bullish outlook for the mergers and acquisitions business now that financial markets have stabilized.

Earnings for the quarter ending March 31 were US$1.2 billion, down 56.3 per cent from the year-ago period. Revenues sank 40.3 per cent to US$6.3 billion.

Nearly all of the big investment bank's business lines were battered by the turmoil that dominated global markets for the first six weeks of 2016.

Revenues from financial advisory services tumbled 20 per cent to US$771 million due to a sharp decline in M&A transactions.

The upheaval also depressed trading activity with net revenues in fixed income, currency and commodities trades sinking 47 per cent to US$1.7 billion.

Goldman offset some of these negatives by slashing employee compensation and benefits by 40 per cent to US$2.7 billion. Litigation and other non-compensation expenses also fell.

Chief financial officer Harvey Schwartz said the firm was heartened by improving conditions throughout the quarter, with March better than the first two months.

"It's early in April, but it really feels like many of the factors that were affecting the first quarter, particularly early on, have abated," he told analysts on a conference call.

"Although the market feels a little frazzled from all that, it feels for the most part like that's behind us."

The upheaval had a "chilling" effect on deal-making, but the M&A market right now "feels good", he said.

"It feels like the fundamental conditions for an elevated level of merger and acquisition activity are all still in place," he said.

"Those things are challenged topline growth and slow-to-very moderate GDP growth globally."

Mr Schwartz said there would be "minimal" impact on deal flow from new US Treasury rules designed to discourage "inversion" takeovers where US companies merge with overseas competitors to lower their tax bill.

Goldman had advised Pfizer, whose US$160 billion proposed deal with Ireland-based Allergan died following the Treasury rules earlier this month.

Goldman's first quarter earnings translated into US$2.68 per share, better than the US$2.45 projected by analysts.

Shares rose 2.1 per cent to US$162.29 in late-morning trade.

AFP