Financial Services

Goldman Sachs sees large fall in revenue from fixed income trading

Wall Street bank enjoys boost from private equity business

Goldman Sachs described the trading environment as “challenging… characterised by low levels of volatility, low client activity and generally difficult market-making conditions”

Tue Jul 18 2017 - 14:27

Goldman Sachs suffered a 40 per cent collapse in revenues from fixed income, currencies and commodities trading in the second quarter of the year, far worse than the other three Wall Street giants that have reported earnings in the three months to June.

However, the bank still managed to top analysts’ overall expectations, with firm-wide $4.00 earnings per share, against the $3.505 expected by analysts polled by Bloomberg, thanks largely to massive gains in its private equities business. Pre-tax earnings rose 2 per cent year-on-year to $2.51 billion (€2.17bn).

"A mixed operating environment persisted into the second quarter as conditions continued to support underwriting and M&A, while constraining certain market-making activity," said chief executive Lloyd Blankfein.

“Against that backdrop we produced revenue growth and improved profitability for the first half of 2017, reflecting both the diversity and strength of our global businesses.”

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In fixed income Goldman blamed the result on “significantly lower net revenues in interest rate products, commodities, credit products and currencies, partially offset by higher net revenues in mortgages”.

The bank described the environment as “challenging…characterised by low levels of volatility, low client activity and generally difficult market-making conditions”.

Fixed income revenue

Other banks have cited similar issues but with less dramatic consequences. JPMorgan’s fixed income revenue fell 19 per cent in the second quarter, while Bank of America’s was down 14 per cent, and Citi’s was down 6 per cent.

Brighter spots for Goldman Sachs included a 42 per cent rise in investing and lending revenues, driven by “significant net gains from private equities, which were positively impacted by corporate performance and company-specific events”.

That investing and lending division returned net revenues of $1.58 billion (€1.37bn)– well ahead of the $1.16 billion (€1bn) from fixed income, currencies and commodities.

Goldman Sachs also missed out on the first quarter fixed income boom enjoyed by its rivals, keeping fixed income revenue essentially flat at $1.69 billion (€1.46bn) (though the bank did boast an 80 per cent rise in first-quarter profits year-on-year). – Copyright The Financial Times Ltd

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