Goldman Sachs is one of the leading investment banks and securities dealing firm in the world. They make their money from providing consultancy services to providing diverse services to individuals, corporations, and governments around the globe. As diverse as it may be, Goldman Sachs core business is investment banking which circles around asset management and raising funds in the capital market.
Judging from the Q2 earnings reports, Goldman Sachs finances was going through rough patch. There was an obvious dip in fixed income earning-money from bond trading, depreciation of their currency holdings and commodity’s performance was the worst in their 18 years as a listed company.
However, there was some good news. Investors and other shareholders had something to smile about when Q3 earnings report was released on Tuesday. Against all odds, earnings data ripped expectations. With an earning per share of $5.02 and surging FICC revenue, Goldman Sachs is now planning to initiate a share buying drive at the tune of $8.7B.
Revenue was up 2% on a year on year basis to $8.33 surpassing expectations of $7.54 and it was worth noting that revenue from its underwriting and lending arm jumped 35% with FICC, in particular, bringing in $4.2B representing a 25% jump from Q2. At the same time, there was a clear rebound from the fixed income, commodity and currency performance which improved significantly after it capitulated on Q2.
Chavez attributed this improvement of trading revenue which suffered in Q2 mainly to central bank led activities which spurred trading. At the same time, the bank decided to trim their daily exposure in the commodities market from $18M to around $9M resulting to about $690M in “inventory reduction” as Q2 ended.
Their security underwriting section which has been receiving a lot of media coverage in recent times didn’t disappoint either. So far this year, its capital raising and debt underwriting efforts have managed to rake in $2.08B the highest this year cementing the business as a reliable underwriter in the market. It also came as a reprieve to Goldman Sachs as this revenue jump helped offset the business underperformance in the trading section, boosting the business’s profitability.
Despite the 2017 highs in FICC revenue, it was still down 23% compared to the same period last year and Goldman Sach’s CFO was quick to note that while the overall results “were good”, it had a lot “more to cover and improve on”.
“Our overall performance this year has been solid and provides a good foundation on which to execute and deliver our growth initiatives”
It goes without doubt that one of these improvements has to do with their low clientele base in mega-corporations. Earning reports showed that FICC stake in institutional clients was down 16% year over year with revenue of $3.1B and was comparatively lower than Goldman Sach’s competitors. Instead, FICC were literally exposing themselves to the whims of hedge funds and this was a gray area President Harvey Schwartz looked to rectify as they look to reassert their “global financing franchise” and help bring in an extra $250M.
Pound for pound, a neutral observer can note a tremendous growth in the corporation’s debt underwriting business. Since 2010, net revenue has more than doubled.
By posting net revenue of $2.08B, Goldman Sachs is now among the top four debt underwriting businesses in the US, up two places from last year but ranked below traditional powerhouses like JP Morgan and Citigroup.
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