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GOLDMAN SACHS GROUP

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Goldman Sachs : Profit Falls 21% as Trading Slows -- Update

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04/15/2019 | 08:56am EDT

By Liz Hoffman

Goldman Sachs Group Inc.'s first-quarter profit fell 21% from a year ago as quiet trading and underwriting took a toll across Wall Street.

Goldman posted a quarterly profit of $2.25 billion, or $5.71 a share, on revenue of $8.81 billion. Both are lower than a year ago, when a newly amped-up market generated outsize trading fees.

The bank's profit beat the expectations of analysts polled by Refinitiv, who predicted $1.97 billion, or $4.89 a share, though revenue came in lighter than the expected $8.99 billion.

Lower expenses helped close the gap as the bank's new chief executive, David Solomon, lives up to his reputation as a cost-cutting operator. Expenses were down 11% from a year ago, led by a 20% cut in pay and lower brokerage and exchange fees, which are usually tied to trading activity.

The bank said it would raise its quarterly dividend a nickel to 85 cents. Shares were down 1.7% in premarket trading.

Trading revenue fell 18% to $3.61 billion compared with a year-ago quarter, in which a suddenly vibrant market spurred investors off the sidelines. That mirrors a 17% drop at JPMorgan Chase & Co., which reported quarterly earnings last week.

Without the big consumer business that bolstered JPMorgan's earnings last week, Goldman is more beholden to its Wall Street traders and investment bankers to power earnings.

The firm has been investing heavily to change. It is growing a consumer bank, partnering with Apple Inc. on its first credit card, raising new investment funds it can collect fees to manage, and building data services it hopes will lure new types of trading clients.

Those business, though, "haven't yet hit their stride," Chief Financial Officer Stephen Scherr said earlier this year. Meanwhile, they have required more than $1 billion of investment spending, and investors being asked for patience are looking for signs of progress.

To that end, Mr. Scherr and his boss, Mr. Solomon, have set a slew of financial targets and promised regular updates. That kind of transparency is unusual for Goldman, which historically kept its cards close and relied on steady profits to placate shareholders.

One number they are hyping is net interest income, the difference between what Goldman earns on assets and what it pays on deposits and other liabilities. A number more traditionally associated with Main Street lenders such as JPMorgan and Citigroup Inc., it has been rising at Goldman as the firm leans into lending and gathers retail deposits. It was $835 million in the first quarter, up from $550 million a year ago.

Goldman's investment-banking revenue was flat from a year ago at $1.81 billion. A rise in merger fees helped offset a slowdown in securities offerings that hit across Wall Street, exacerbated by a government shutdown that delayed approvals for new issuances.

The firm said its backlog of deals, a closely watched measure of future fees, continued to fall.

Goldman's money-management unit posted revenue of $1.56 billion, down from a year ago, while assets it manages or advises on rose to a record $1.6 trillion, as the market recovered from a late-December swoon.

The business has focused on high-touch service for big pension funds and insurance companies, though it also offers a smattering of low-fee, passive funds and is building a robo-investing service for individual clients.

Write to Liz Hoffman at liz.hoffman@wsj.com

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Financials ($)
Sales 2019 35 291 M
EBIT 2019 12 404 M
Net income 2019 8 761 M
Debt 2019 -
Yield 2019 1,67%
P/E ratio 2019 8,76
P/E ratio 2020 7,89
Capi. / Sales 2019 2,12x
Capi. / Sales 2020 2,04x
Capitalization 74 871 M
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Mean consensus HOLD
Number of Analysts 27
Average target price 228 $
Spread / Average Target 12%
EPS Revisions
Managers
NameTitle
David Michael Solomon Chairman & Chief Executive Officer
John E. Waldron President & Chief Operating Officer
Stephen M. Scherr Chief Financial Officer & Executive Vice President
James A. Johnson Independent Director
William W. George Independent Director
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