Goldman Sachs smashes analysts’ estimates on greater than anticipated inventory buying and selling and funding banking
Goldman Sachs exceeded analyst expectations for fourth quarter earnings and sales on Tuesday due to the strong performance of the company’s stock traders and investment bankers.
The bank posted earnings of $ 12.08 per share, breaking the $ 7.47 estimate of analysts surveyed by Refinitiv. Sales of $ 11.74 billion exceeded expectations by approximately $ 1.75 billion.
The New York-based bank’s shares were down 2.3% after rising 2% in premarket trading.
“We have been able to help our customers navigate a difficult environment and as a result have strong results across the franchise while driving our strategic priorities,” said CEO David Solomon in the press release. “We hope this year brings much-needed stability and a break from the pandemic, but we remain poised to deal with a variety of outcomes and ready to serve our customers’ needs.”
The expectations of Solomon were high. Last week, JPMorgan Chase posted record trading and advisory results in the fourth quarter that helped the bank beat earnings estimates.
At Goldman, stock traders saw revenue grow 40% year over year to $ 2.39 billion, beating the estimate of $ 1.89 billion by roughly $ half a billion. But, like most of its peers, the fixed income business fell short of expectations for the quarter, posting revenue of $ 1.88 billion, which is below the estimate of $ 2.06 billion.
Investment banking revenues rose 27% to $ 2.61 billion, beating the forecast of $ 2.15 billion. This is due to higher earnings from underwriting stocks and completed mergers.
“Goldman Sachs’ profits were shockingly good,” said Octavio Marenzi, CEO of capital market management consultancy Opimas. “We were expecting a strong performance, but Goldman outperformed almost all of its businesses.… Goldman’s operations are fully focused on investment banking and trading, areas that did well everywhere but particularly well at Goldman.”
In a separate presentation, Goldman said it had made progress on the goals set a year ago at the first investor day and reiterated that it was committed to its medium and long-term goals.
Of the six largest US banks, Goldman generates most of its revenue from Wall Street activities, including trading and investment banking. This has been a disadvantage for the company in recent years as retail banking has driven the industry’s record profits. Now Goldman’s model is proving to be an advantage.
Wide open markets should help usher in the best year for trading on Wall Street since the Great Recession, thanks to unprecedented actions by the Federal Reserve earlier this year. Meanwhile, investment bankers are benefiting from increasing demand for IPOs and a record rate of debt issuance.
Goldman’s investment banking division had record sales of $ 9.42 billion in 2020 thanks to increased underwriting of stocks and bonds. And the company’s commercial division posted its highest annual sales in a decade, up 43% from 2019 due to strong activity in all markets.
Goldman shares rose 11% in 2020, outperforming the KBW Bank Index’s 4.3% decline.
Here are the numbers:
Earnings: $ 12.08 per share versus $ 7.47 per share, according to Refinitiv.
Revenue: $ 11.74 billion versus $ 9.9 billion.