Goldman Sachs profits fall 20 per cent in first quarter amid calm markets

Profits at Goldman Sachs fell 20 per cent in the first quarter with revenues dropping in its trading and equities arms as lower market volatility limited opportunities for gain.

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The Wall Street giant said the US government shutdown, US-China trade tensions, and Brexit had all impacted its “muted” first quarter results.

Goldman employees felt the weaker results in their pockets in the first quarter which saw the investment bank reduce pay by 20 per cent.

Shares in Goldman Sachs had fallen three per cent shortly after opening on the New York Stock Exchange to $201.30 (£153.7).

The figures

The Wall Street giant’s pre-tax earnings for the first three months of the year fell to $2.7bn (£2.1bn), a 20 per cent drop compared to the same period a year earlier.

Its net revenues fell 13 per cent to $8.8bn, led by a drop of 24 per cent in its revenues from equities.

The cash and cash equivalents on its balance sheet fell to $88bn from $131bn in the previous quarter.

Goldman Sachs’s basic earnings per common share fell 18 per cent to $5.73 from $7.02 a year earlier.

Goldman increased its quarterly dividend to $0.85 per common share, it said.

Goldman’s operating expenses fell 11 per cent to $5.9 billion, mostly due to the fall in compensation.

Why it's interesting

A fall in revenues in most sections of the investment bank was put down to weaker market volatility – meaning low rates of fluctuation in the values of the assets Goldman deal with, which limited the money that could be made from them.

However, despite missing market expectations on revenues, Goldman’s earnings were better than predicted by gloomy analysts despite also falling. Yahoo Finance shows that on average analysts predicted diluted earnings per share of $4.89 in the first quarter, whereas the bank achieved $5.71.

It said the US government shutdown at the start of the year “kept issuers and investors on the sidelines”, limiting initial public offerings (IPOs) of shares and holding down profit opportunities in that sector.

Meanwhile, the continuation of Brexit and US-China trade negotiations added uncertainty, Goldman said.

In a trend on Wall Street and among big US companies, Goldman Sachs spent $1.5bn buying back its own shares, meaning shareholders received $1.56bn of capital when combined with dividends. It said it would continue to “maximise shareholder returns”.

What Goldman Sachs said

Chairman and chief executive David Solomon said: “We are pleased with our performance in the first quarter, especially in the context of a muted start to the year. Our core businesses generated solid results.”

He said: “We are focused on new opportunities to grow and diversify our business mix and serve a broader range of clients globally.”

Solomon struck a positive note in a conference call, saying that as asset prices rose in March, “our institutional investing clients appeared less cautious”.

“We continue to hear a strong desire to executive strategic transactions and access the capital markets while the economy is growing, market prices are favourable, and financing markets are open.”

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“In that vain we are optimistic on the forward as underlying indicators remain encouraging though it’s still very early in the second quarter,” he said.