Goldman Sachs (GS) Tops Q1 EPS by 23c; Investment Banking Revenue Fell 23%

(Updated - April 19, 2016 7:41 AM EDT)

Goldman Sachs (NYSE: GS) reported Q1 adjusted EPS of $2.68, $0.23 better than the analyst estimate of $2.45. Revenue was $6.34 billion, versus $6.73 billion expected.

The operating environment this quarter presented a broad range of challenges, resulting in headwinds across virtually every one of our businesses,” said Lloyd C. Blankfein, Chairman and Chief Executive Officer. “Looking ahead, we will continue to focus on delivering superior service to our clients and managing our business efficiently, which remain essential to generating shareholder value over the long term.”

Investment Banking

Net revenues in Investment Banking were $1.46 billion for the first quarter of 2016, 23% lower than the first quarter of 2015 and 5% lower than the fourth quarter of 2015. Net revenues in Financial Advisory were $771 million, 20% lower compared with a strong first quarter of 2015, reflecting a decrease in completed mergers and acquisitions transactions. Net revenues in Underwriting were $692 million, 27% lower than the first quarter of 2015, due to significantly lower net revenues in equity underwriting, reflecting low levels of industry-wide activity during the quarter. Net revenues in debt underwriting were significantly higher compared with the first quarter of 2015, primarily reflecting an increase in investment-grade activity. The firm’s investment banking transaction backlog decreased
compared with the end of 2015, but was higher compared with the end of the first quarter of 2015.

Institutional Client Services

Net revenues in Institutional Client Services were $3.44 billion for the first quarter of 2016, 37% lower than the first quarter of 2015 and 20% higher than the fourth quarter of 2015.

Net revenues in Fixed Income, Currency and Commodities Client Execution were $1.66 billion for the first quarter of 2016, 47% lower compared with a strong first quarter of 2015. During the first quarter of 2016, Fixed Income, Currency and Commodities Client Execution operated in a challenging environment characterized by economic uncertainty and difficult market-making conditions, which resulted in significantly lower net revenues across all major businesses compared with the first quarter of 2015.

Net revenues in Equities were $1.78 billion for the first quarter of 2016, 23% lower than the first quarter of 2015, due to significantly lower net revenues in equities client execution compared with a strong first quarter of 2015. The decrease in equities client execution reflected significantly lower net revenues in both cash products and derivatives. These results were partially offset by higher commissions and fees, reflecting higher volumes in the United States, and higher net revenues in securities services, reflecting improved spreads. During the quarter, the operating environment for Equities was impacted by economic uncertainty, which contributed to higher levels of volatility and generally lower global equity prices compared with the fourth quarter of 2015. The fair value net loss attributable to the impact of changes in the firm's credit spreads on borrowings was $44 million ($32 million and $12 million related to Fixed Income, Currency and Commodities Client Execution and equities client execution, respectively) for the first quarter of 2015.

Investing & Lending

Net revenues in Investing & Lending were $87 million for the first quarter of 2016, significantly lower than both the first quarter of 2015 and the fourth quarter of 2015. The decrease in net revenues compared with the first quarter of 2015 was primarily due to a significant decrease in net revenues from investments in both private and public equities, which were negatively impacted by generally lower global equity prices and corporate performance during the first quarter of 2016. Net revenues in debt securities and loans were also significantly lower compared with the first quarter of 2015, primarily reflecting lower net revenues related to loans and lending commitments to institutional clients (including higher provision for losses) and lower net gains from investments.

Investment Management

Net revenues in Investment Management were $1.35 billion for the first quarter of 2016, 15% lower than the first quarter of 2015 and 13% lower than the fourth quarter of 2015. The decrease in net revenues compared with the first quarter of 2015 primarily reflected significantly lower incentive fees. In addition, management and other fees were slightly lower, reflecting shifts in the mix of client assets and strategies, partially offset by the impact of higher average assets under supervision. During the quarter, total assets under supervision increased $35 billion to $1.29 trillion. Long-term assets under supervision increased $19 billion, due to net inflows of $10 billion, primarily in fixed income and equity assets, and net market appreciation of $9 billion, reflecting appreciation in fixed income assets. In addition, liquidity products increased $16 billion.

Capital

• As of March 31, 2016, total capital was $267.00 billion, consisting of $86.84 billion in total shareholders’ equity (common shareholders’ equity of $75.63 billion and preferred stock of $11.20 billion) and $180.16 billion in unsecured long-term borrowings.

• The firm’s Standardized Common Equity Tier 1 ratio reflecting the applicable transitional provisions was 13.4% as of March 31, 2016, compared with 13.6% as of December 31, 2015.

• The firm’s Basel III Advanced Common Equity Tier 1 ratio reflecting the applicable transitional provisions was 12.2% as of March 31, 2016, compared with 12.4% as of December 31, 2015.

• The firm’s supplementary leverage ratio on a fully phased-in basis was 6.0% as of March 31, 2016, compared with 5.9% as of December 31, 2015.

• During the quarter, the firm issued 27,000 shares, out of a total of 31,050 shares authorized for issuance, of perpetual 6.30% Non-Cumulative Preferred Stock, Series N, for aggregate proceeds of $675 million.

• During the quarter, the firm exchanged $672 million of Goldman Sachs Capital II and Goldman Sachs Capital III Normal Automatic Preferred Enhanced Capital Securities (APEX) for shares of Series E and Series F Preferred Stock, which were cancelled upon the exchange. The difference between the fair value of the APEX exchanged and the net carrying value of the preferred stock was $161 million, which was reflected in preferred stock dividends.

• On April 18, 2016, the Board of Directors of The Goldman Sachs Group, Inc. declared a dividend of $0.65 per common share to be paid on June 29, 2016 to common shareholders of record on June 1, 2016.

• During the quarter, the firm repurchased 10.0 million shares of its common stock at an average cost per share of $154.44, for a total cost of $1.55 billion.

• Book value per common share was $173.00 and tangible book value per common share was $163.54, both 1% higher compared with the end of 2015. Book value per common share and tangible book value per common share are based on common shares outstanding, including restricted stock units granted to employees with no future service requirements, of 437.2 million as of March 31, 2016.

Other Balance Sheet and Liquidity Metrics

• Total assets were $878 billion as of March 31, 2016, compared with $861 billion as of December 31, 2015.

• The firm’s global core liquid assets were $196 billion (5) as of March 31, 2016 and averaged $198 billion (5) for the first quarter of 2016, compared with an average of $201 billion for the fourth quarter of 2015.

• Level 3 assets were $24 billion as of March 31, 2016, compared with $24 billion as of December 31, 2015, and represented 2.8% of total assets.

For earnings history and earnings-related data on Goldman Sachs (GS) click here.

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