Strategy

Fixed-Income Trading Boosts Goldman Results

“We've come out of a very low volume, low volatility environment over a number of years," CFO Harvey Schwartz says.
Matthew HellerJanuary 19, 2017
Fixed-Income Trading Boosts Goldman Results

Goldman Sachs joined other banks in reporting strong quarterly earnings due to a surge in trading volume across fixed-income markets.

The surge has been fueled by the election of Donald Trump in November and the U.S. Federal Reserve’s decision in December to raise interest rates.

“We’ve come out of a very low volume, low volatility environment over a number of years,” Goldman CFO Harvey Schwartz said on an earnings call. “With the shifting policies around the globe, it’s an extraordinary catalyst.”

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According to Reuters, Schwartz did not comment directly on Trump’s stated policy goals but noted widespread confidence that there will be stronger fiscal policy, diverging interest rates globally and a better economy.

For the fourth quarter, Goldman reported that profit rose to $2.2 billion in the fourth quarter from $574 million a year earlier, when the bank was hit with a $5 billion legal settlement. Net revenue jumped 12% to $8.2 billion, above the average estimate of $7.7 billion.

Goldman’s adjusted earnings per share of $5.08 topped the average analyst estimate of $4.82.

“After a challenging first half, the firm performed well for the remainder of the year as the operating environment improved,” CEO Lloyd Blankfein said in a news release. “We continued to manage our expenses carefully and we enter the new year with industry leading positions across our businesses, as well as strong capital and liquidity.”

Bond trading was the biggest contributor to the results, with revenue jumping 78% to more than $2 billion, the highest level since the first quarter of 2015.

Overall, Goldman’s trading division generated $3.6 billion in revenues, but the equity trading desk reported a 9% decline in revenues to $1.6 billion due to “significantly lower” revenues from cash products.

Non-compensation expenses fell 44% in the quarter, led by a reduction in legal settlements and lower costs from real estate and professional fees.

“With interest rates now marching higher and corporations on their front foot 2017 augurs well for Goldman,” Forbes said. “The bank is expected by some analysts to end the year at new post crisis highs in profitability.”

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