Goldman Posts Rise in Earnings -- WSJ
October 18 2017 - 3:02AM
Dow Jones News
By Liz Hoffman
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 18, 2017).
Goldman Sachs Group Inc.'s investment bankers and portfolio
managers drove a surprise rise in quarterly profit, compensating
for another rough spell for the Wall Street firm's once-unstoppable
traders.
Earnings of $5.02 a share and revenue of $8.33 billion were both
higher than last year and ahead of expectations of analysts, who
thought Goldman would be the only big bank to make less money than
it did a year ago.
Goldman lacks the big lending and consumer businesses that
buoyed larger rivals last quarter. Instead, its gains came courtesy
of its merger unit and a rising stock market that boosted the value
of Goldman's own investments in other companies.
Those gains were enough to overcome a 17% decline in its trading
arm, which is on pace for its worst year since 2008.
Goldman is under pressure to revive its flagging trading
businesses and, absent a quick turnaround there, find new areas to
grow. Last month it laid out a blueprint to earn an extra $5
billion in revenue by 2020, nearly half of which it expects to come
from a new focus on lending, a steadier business that will become
more attractive as interest rates rise.
Still, investors and analysts remain skeptical. Shares fell 2.6%
Tuesday, their biggest drop in six weeks, despite Goldman dangling
the prospect of a dividend increase.
Goldman's return on equity, a key measure of profitability, was
10.9%. It and J.P. Morgan Chase & Co. were the only two of the
six big U.S. banks to exceed a 10% theoretical cost of capital this
quarter.
Goldman's trading declines were similar to those posted by
rivals including Morgan Stanley and J.P. Morgan. Calmer markets, as
well as a continued flow of investor assets to passive strategies,
have kept trading volumes down and bid-offer spreads tight. Both
make it hard for bank traders to profit.
Revenue in Goldman's key fixed-income division fell 26%. Of its
five major product areas, only mortgages did better than a year
ago. Commodities is on pace for its worst year since Goldman went
public in 1999, Chief Financial Officer R. Martin Chavez said.
"We know we can do better; we know we need to do better," he
said.
Goldman's merger bankers provided a big boost, posting $911
million in quarterly revenue. Several large deals were completed in
the quarter, including the merger of industrial giants Dow and
DuPont, for which Goldman earned a $40 million fee, filings
show.
Gains from Goldman's own investments in other companies rose 51%
in the quarter as stock indexes hit new records. Shareholders
typically give less credit for investing gains, though, because
they aren't seen as repeatable.
Analysts' reaction to the results was muted. "Don't call it a
comeback," Evercore ISI's Glenn Schorr wrote. Nomura called it a
"low-quality" earnings beat.
As Goldman looks less like the private partnership it once was
and more like any other public company -- and one that is
struggling to grow -- it is under pressure to raise the curtain
that for years cloaked its inner workings.
The firm on Tuesday disclosed how much the Federal Reserve had
approved in future dividend payouts and buybacks, information some
peers readily offer but which Goldman hasn't shared before. Goldman
may repurchase up to $8.7 billion in stock by mid-2018 and increase
its dividend 5 cents to 80 cents a share next year, Mr. Chavez
said.
That followed an unusually detailed presentation last month from
the firm that laid out revenue growth plans.
Analysts in recent months had pressured Goldman to share its
capital-return plan. Mr. Chavez said Tuesday that the firm had
"extensively engaged" with shareholders in recent months on the
issue.
Still, analysts want more. On Tuesday's conference call, they
pushed Goldman executives for more details about the breakdown of
its fixed-income trading revenue and how its new consumer-lending
business is performing. Mr. Chavez promised more "continuous
dialogue."
Write to Liz Hoffman at liz.hoffman@wsj.com
(END) Dow Jones Newswires
October 18, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Goldman Sachs (NYSE:GS)
Historical Stock Chart
From Aug 2024 to Sep 2024
Goldman Sachs (NYSE:GS)
Historical Stock Chart
From Sep 2023 to Sep 2024