Goldman Sachs shares sink as earnings disappoint while rivals thrive
Goldman Sachs Group shares fell the most since the day after the UK voted to leave the European Union, leading the Dow Jones Industrial Average lower after bond-trading revenue fell short of estimates and lagged behind rivals.
Shares of the company slid 5 per cent to US$214.95 late on Tuesday in New York, the most since June 24. Revenue from fixed-income trading of US$1.69 billion suffered from weaker demand in commodities and currencies, the New York-based company said in a statement, and missed analysts’ US$2.03 billion estimate.
“This is a hole, just like last year started in a hole,” Devin Ryan, an analyst at JMP Securities LLC, said in an interview. “Seasonally you should have some tailwinds in the beginning of the year, so it’s not normal to start the year slow.”
The surprise results contrast with reports from Goldman Sachs’s three bigger competitors. Bank of America said earlier that its trading revenue climbed, while JPMorgan Chase & Co. and Citigroup last week reported revenue from that business exceeded estimates.
Chief Executive Officer Lloyd Blankfein has said he’d like to operate his firm with less capital and that President Donald Trump’s plan to reduce regulations may help trading.
“The operating environment was mixed, with client activity challenged in certain market-making businesses,” Blankfein, who rose through the ranks of the fixed-income business, said in the statement.
Analysts on a conference call peppered Deputy Chief Financial Officer Marty Chavez with six questions about the trading slowdown. Chavez, who will take over the CFO role from Harvey Schwartz at the end of this month, attributed the decline to lower volatility in commodities and currency markets. The dollar-euro exchange rate and crude oil prices are the stablest they’ve been in about two years, he said. Chavez also cited the firm’s client mix, compared with bigger competitors who have larger lending books and more corporate customers.
Net income almost doubled to US$2.26 billion, or US$5.15 a share, from US$1.14 billion, or US$2.68, a year earlier, the company said in the statement.
Goldman Sachs’s company wide revenue increased 27 per cent to US$8.03 billion, compared with the $8.33 billion average estimate of analysts.
Total trading revenue, which also includes equities, fell 2 per cent to US$3.36 billion. Stock trading dropped 6 per cent to US$1.67 billion. The first quarter period usually accounts for about a third of the entire year’s trading revenue, according to Oppenheimer & Co.’s Christopher Kotowski.
Goldman Sachs’s share price surged 32 per cent from the US presidential election through the end of last year on optimism Trump would usher in pro-growth economic policies, and as firm alumni including former President Gary Cohn took up key positions in the administration.