The shares of Goldman Sachs Group, Inc. (NYSE: GS) closed almost flat at 206.46 after the financial behemoth posted 3Q 2019 profit below Wall Street forecasts. The revenues, however, surpassed analysts’ expectations. Goldman Sachs also reported a 15% decline in investment-banking revenue from the earlier period.
Furthermore, the investment bank also took a charge of $267 million on investments in firms such as Tradeweb Markets and Uber. The quarterly results reflected the worst performance in the past three years for the bank’s investments in public listed firms.
The New York-based financial services provider posted 3Q 2019 revenues of $8.32 billion, down 5.7% from $8.82 billion in a similar period last year. The revenues reflect a decline in Investment Banking and Investing and Lending revenues, partly negated by an increase in Institutional Client Services revenues.
Net earnings for the third quarter dropped to $1.79 billion or $4.79 per share, from $2.45 billion, or $6.28 per share, in the prior-year period. Analysts surveyed by Thomson Reuters anticipated earnings of $4.81 per share on revenues of $8.31 billion for the quarter.
Commenting on the results, CEO David Solomon said, “Our results through the third quarter reflect the underlying strength of our global client franchise and its ability to produce solid results in the context of a mixed operating environment. We continue to execute on our strategic priorities, including investing in important growth opportunities in our existing and new businesses.”
Segment-wise:
- Investment Banking – revenues dropped 15% to $1.69 billion in Q3 2019. Analysts anticipated revenues of $1.80 billion.
- Institutional Client Services – revenues increased 6% y-o-y to $3.29 billion. In particular, equities trading desks generated $1.88 billion, surpassing the $1.79 billion estimate of analysts polled by FactSet. Bond trading revenue was $1.41 billion, exceeding the $1.36 billion estimate.
- Investing & Lending – revenues for 3Q 2019 were $1.68 billion, down 17% on third-quarter-y basis. The reported figures were below the $1.74 billion expected by analysts.
- Investment Management – revenues for the recent quarter were $1.67 billion, down 2% from last year, but matched analysts’ expectations.
For the third-quarter, provision for credit losses increased 67% to $291 million, mainly reflecting higher impairment charges. The Goldman Sachs Board also approved a dividend of $1.25 per share to be paid on December 30th, 2019.
After assuming the role of CEO last October, Solomon started with an internal review of the bank’s operations, which triggered several high-profile departures including chief information officer Elisha Wiesel and trading head Marty Chavez.
The review, which is yet to be completed, has made investors impatient. The 150-year old bank continues to invest in fresh endeavors to move away from its acknowledged strength, which is trading in equity markets.
Goldman Sachs also owns stakes in WeWork, which is a concern to investors. According to Betsy Graseck, an analyst at Morgan Stanley, they have estimated that the investment bank would include a writedown of $264 million due to this investment.
Ironically, private equity stakes enabled the bank to easily surpass analysts’ earnings estimates in earlier quarters. However, investors do realize that private equity stakes act as a source of earnings volatility in declining markets. The mixed results, weak performance of investing and lending, and investment banking division is expected to turn the stock weak in the short-term.
Technically, the stock has started declining after facing resistance at 225. The stochastic oscillator is making lower highs. As a result, we can expect the stock to move down in the short-term.
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