Goldman Sachs Reports Profits, Revenue Slipping--Update
16 July 2019 - 11:09PM
Dow Jones News
By Liz Hoffman
Goldman Sachs Group Inc.'s quarterly profit fell 6% as clients,
spooked by trade tensions and interest-rate whiplash, kept their
money on the sidelines.
The Wall Street bank reported quarterly profits of $2.42
billion, or $5.81 a share, on revenue of $9.46 billion. Both were
lower than a year ago, but topped muted expectations of analysts
polled by FactSet, who had expected earnings of $1.9 billion, or
$4.89 per share, on revenue of $8.8 billion.
Expenses failed to fall in line with revenue as the bank
continues to spend heavily on new initiatives like retail banking
and wealth management.
Consumer-facing businesses buoyed both Citigroup Inc. and
JPMorgan Chase & Co., which both reported higher quarterly
earnings this week. Even given Goldman's efforts to make itself
more of a Main Street bank, it still gets most of its profits from
its traders and investment bankers, which leaves it more exposed
than rivals to jumpy markets.
Its relatively new chief executive, David Solomon, is trying to
speed up that pivot. He is adding steadier interest-generating
projects, like a joint credit card with Apple Inc., and bought a
network of wealth managers.
Banks' trading desks do well when clients are confident enough
about the direction of stock prices, interest rates and other
assets to place big bets. Uncertain investors tend to hunker down
rather than risk a loss.
Uncertainty reigned in the second quarter. Escalating trade
tensions between the U.S. and China, as well as trade friction with
Mexico, rattled global markets in the quarter. Interest-rate cuts
began to look likely, reversing investor expectations that the
Federal Reserve would continue to raise benchmark rates as the
economy strengthened.
Goldman's quarterly trading revenue was 3% lower than a year
ago, driven by a 13% decline in fixed-income trading, which
includes bonds, currencies and other products tied to interest
rates and global economic indicators. Those traders made $1.5
billion in quarterly revenue, compared with as much as $6 billion a
decade ago.
Things held up better in stock trading, a steadier business
where banks can eke out fixed commissions regardless of which way
prices are heading. Revenue of $2 billion rose 6% from a year ago,
versus a 12% drop at JPMorgan, which also reported quarterly
earnings on Tuesday.
Morgan Stanley, the largest stock-trading shop on Wall Street,
will report on Thursday, wrapping up the quarterly earnings
season.
Goldman's investment bankers, who broker mergers and help
companies raise money through securities offerings, posted a 9%
drop in revenue. Underwriting fees were down 12%, in line with
JPMorgan and driven by a decline in debt underwriting. Companies
may be holding off on new borrowings, expecting interest rates to
fall later this year.
Merger advisory fees were 3% lower than a year ago, but they
remain up 20% so far this year compared with 2018. The bank earned
a $35 million payday on the largest deal completed in the quarter,
the tie-up of defense contractors L3 Technologies Inc. and Harris
Corp.
Revenue in Goldman's money-management arm, its smallest
division, fell 14% from a year ago, when it pocketed a higher than
usual share of profits from private-equity and hedge-fund
investments it oversees.
Goldman is aiming to grow asset management, a steadier,
fee-generating business that has benefited from the decadelong bull
market. In May, Goldman signed a deal to acquire United Capital, a
network of financial advisers who manage about $24 billion for
affluent individuals.
Write to Liz Hoffman at liz.hoffman@wsj.com
(END) Dow Jones Newswires
July 16, 2019 08:54 ET (12:54 GMT)
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