Goldman falls as equity trading slumps, banking backlog declines

NEW YORK • Goldman Sachs Group Inc fell in early trading yesterday as the rm posted a bigger drop in equity trading than expected and warned that the investment banking boost it got in the first quarter (1Q) may not last.

The equity trading slump led Goldman to a bigger decline in total trading revenue than at Citigroup Inc or JPMorgan Chase & Co.

While that was buffered by a surprise jump in deal fees, the company said its backlog of mergers and debt underwriting transactions shrank compared to the end of 2018 as outstanding deals were completed.

Goldman’s new management team, led by CEO David Solomon (picture), is getting closer to finishing a firm-wide review that’s already led to changes in the trading operation, including scaling back some commodities businesses. This marked the second straight quarter that trading revenue steeply declined, which has hampered Solomon’s efforts to show more stable results.

“Despite an ambitious strategy to diversify the bank’s revenue streams from its core investment banking activities — such as the launch of Marcus, its online banking service — Goldman’s revenue structure remains quite static,” said Axel Pierron, MD of capital markets management consultancy Opimas.

Shares of Goldman, which jumped 24% this year through last Friday, fell about 1.9% at 8:50am yesterday in New York. The firm’s stock had staged a comeback this year after cratering toward the end of 2018 amid growing concern over the firm’s role in a Malaysian corruption scandal and tumult in the market in December.

Goldman shares rallied 2.5% last Friday after JPMorgan reported 1Q results that included a smaller drop in trading than expected.

Goldman’s revenue “was a little bit softer than expected”, said Devin Ryan, an analyst with JMP Securities.

“They did beat on earnings per share, but that’s in expenses and taxes, those are areas (where) people are going to question how much of that will sustain as the year progresses.”

Goldman’s traders, who bring in the firm’s biggest chunk of revenue, posted an 18% drop in revenue to US$3.61 billion (RM14.86 billion), in line with the average analyst estimates. Citigroup, which also posted 1Q results yesterday, said trading revenue dropped just 5.2% after its bond traders turned in a surprise gain of 1%.

Goldman’s investment banking revenue rose 1% to US$1.8 billion for the quarter, compared to the average estimate of a 5% fall to US$1.7 billion. — Bloomberg