Goldman Sachs (NYSE:GS) will announce its performance numbers for the first quarter of 2012 next Tuesday. And this time around, we expect the bank to report good earnings numbers purely on the strength of its operations. After a dismal Q3 2011 when the bank reported only its second ever quarterly loss, Goldman reported a $1 billion profit in Q4 2011 largely on the back of its ICBC stake sale. A recovery in global markets over the last 3 months should have lifted Goldman’s performance as we expect to see. In addition JPMorgan Chase (NYSE:JPM) and Citigroup’s (NYSE:C) investment banking results will help give some clarity on how this business is recovering for the banks in general.
We currently have a $126 price estimate for Goldman’s stock, at a premium of nearly 10% to its current market price.
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FICC Operations Should Show A Market Turnaround
Our analysis of Goldman Sachs shows that its Fixed-Income, Currencies & Commodities (FICC) trading operations contribute to nearly a third of its total value. Over the last 2 quarters, extremely volatile market conditions due to the economic unrest in Europe severely hit revenue figures for Goldman’s FICC business.
But the bond market opened up substantially in Q1 2012. And with investors showing an increased interest in debt instruments, including mortgage-backed securities, Goldman should have cashed in on the improved scenario. In fact, we believe Goldman FICC revenues for this quarter may very well come close to the blockbuster first quarter of 2011, when the division roped in well over $4 billion for the 3 month period.
Lukewarm Quarter For Advisory & Underwriting Services
Data compiled by Thomson Reuters hints to a mixed result when it comes to advisory & underwriting services. Companies worldwide continued to stay away from acquisitions for the period, as is evident from the 26% decline in M&A deals for Q1 2012 as compared to the already depressed Q4 2011.
On the other hand debt and equity underwriting services have seen considerable demand growth for the period, with the volume of debt underwriting and equity underwriting deals growing by nearly 70% and 60% respectively over Q4 2011.