Goldman Sachs‘ (NYSE:GS) better-than-expected earnings shows that the business environment for major banks has improved significantly since the beginning of the year. [1] The strong performance is despite the global investment bank’s plans to lower its exposure to risky assets over the period. The bank roped in just under $10 billion in quarterly revenues, which is 64% more compared to the dismal Q4 2011. This translated to a net income of $2.1 billion.
We updated our price estimate for Goldman’s stock from $126 to $128 as the bank revised its quarterly dividend payout by a larger amount than what we earlier estimated.
See the full Trefis analysis for Goldman Sachs
Debt Trading Business Is Looking More Like Its Former Self
Goldman Sachs’ income statement relies quite heavily on its Fixed-Income, Currencies & Commodities (FICC) business. The importance is clear from the fact that in Q1 2011, FICC operations roped in nearly half of Goldman’s total revenues. It is hence no surprise that the division contributes nearly a third of our estimated value for Goldman, as evident in the chart above.
Goldman’s FICC client execution business generated just under $3.5 billion, a good two-and-a-half times the figure for the last quarter. But this number is still 20% below that for the same period last year. While we had expected Goldman to report FICC revenues close to the Q1 2011 number, the bank’s decision to reduce its risky exposure clearly had an impact on its top-line.
And The Upswing In Equity Markets Also Helped
Extremely volatile equity markets in the latter half of 2011 hit Goldman’s equities business quite hard, and the bank was forced to report substantial losses in all its equity investments. But as the market prices continue to normalize, the bank has been able to show a decent turnaround in its equities trading business too.
Equity trades carried out on behalf of clients helped Goldman raise a little over a billion in cash over the quarter, which is double the figure from last quarter and 7% higher compared to Q1 2011.
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Notes:- First Quarter 2012 Results, Goldman Sachs Investor Releases, Apr 17 2012 [↩]
