Goldman Sachs

Goldman Sachs Beats on Strong Investing, Lending; Lower Costs

Goldman Sachs Group, Inc. (NYSE:GS) reported EPS of $4.29, beating Street estimates of $3.87, due to stronger revenues (particularly in investing & lending) and better non-comp expenses. Top-line results  for Goldman Sachs Group, Inc. (NYSE:GS) were better than expected (+9% q/q and flat y/y ex DVA) and expenses came in lower than expected (though +36% q/q, given 4Q comp true-up), with a comp ratio of 43% and non-comp -19% q/q and -1% y/y.

Goldman Sachs Beats on Strong Investing, Lending; Lower Costs

Mgmt bought back 10.1M shares and upped the authorization to 86.4M shares, and capital ratios remain strong, with a 12.7% Tier 1 Common Ratio. The ROE for the quarter was 12.4% (13.2% ROTE) and BV/TBV grew at 3% q/q. Overall, a strong quarter, and while some of the strength in revenues was driven by marks (I&L), mgmt continues to focus on what they can control (costs and capital mgmt).

Segment Data via Citi

FICC weaker & Expense change mostly a timing issue – Overall, we view 1Q core results as mostly inline with our above-consensus estimates. 1Q’s softer FICC performance may set up for a bit softer 2013 given Goldman Sachs Group, Inc. (NYSE:GS)’s seasonal pattern of sequential revenue declines throughout the year. Overall, we see the comp ratio cut to 43% as more of a quarterly timing issue that mostly reduces flexibility for the rest of the year, and should not significantly impact our full year estimates, given we already are modeling 39% for 2013 & 2014. This is also not the 1st time GS accrued 43% in 1Q (1Q10 as well).

Softer FICC for Goldman Sachs Group, Inc. (NYSE:GS) offset by better Inv Banking; Equities Inline — Core FICC revenues (ex DVA) of $3.26 bil missed our $3.56 bil estimate, falling -9% y/y (vs our flat est) due we think to weaker Rates (which had a strong quarter last year due to LTRO), though core Equities revenues of $1.96 bil were just ahead of our $1.91 bil estimate, falling – 17% y/y driven by a -23% drop in Eq client execution. I-banking was key bright spot rising 36% y/y beating our estimate by ~$250 mil on 69% y/y rise in DCM, and 53% increase in ECM.

Inv & Lending a bit better across the board; Inv Mgmt also slightly better — I&L was a ~$300 mil beat as Equity gains were ~$90 mil better than expected plus smaller beats in Debt, ICBC & Other. Inv Mgmt revs beat us by $90 mil on incentive fees and AUM rose 1% q/q to $860B with $11B of l/t inflows offset by $15B of liquidity outflows.

Goldman Sachs Group, Inc. (NYSE:GS) Capital remains solid, VaR flat — TBV/shr rose +3% q/q to $139 and GS bought back $1.52 bil of stock in the qtr (vs our $1.4 bil est). Firmwide assets rose 2% q/q to $959 billion. VaR was flat q/q at $76 mil. Board approved 75 mil shr buyback authorization.

Positives and Negatives for Goldman Sachs Group, Inc. (NYSE:GS) Via BAML

  1. Investment banking +12% q/q (+36% y/y) with ECM +28% q/q (+53% y/y), and record DCM revs +17% q/q (+69% y/y);
  2. Total trading (ex DVA and the 4Q HF admin sale) +31% q/q; with FICC trading +54% q/q & equity trading +6% q/q (equity client execution +4% q/q, commissions +10% q/q, and security services +1% q/q);
  3. Investing & lending revenues of $2.1B (+5% q/q) on broad strength;
  4. Inv mgmt LT inflows of $11B;
  5. VaR flat q/q;
  6. Non-comp expenses -19% q/q and -1% y/y and comp ratio inline;
  7. Headcount -1% q/q & y/y;
  8. BV/TBV +3% q/q and +10%/+12% y/y;
  9. Strong Tier 1 Common Ratio of 12.7% under revised regulations, and $174B GCE;
  10. Buybacks of 10.1M shares (vs. 12.7M in 4Q), and upped authorization to 86.4M shares; &
  11. ROE of 12.4% (16.5% in 4Q given comp true-up) & ROTE of 13.2%.

Negatives in the quarter for Goldman Sachs Group, Inc. (NYSE:GS)

  1. M&A -5% q/q (-1% y/y), & IB backlog lower.
  2. Total trading (ex DVA) -12% y/y, with FICC trading -9% y/y & equity trading -17% y/y;
  3. Investment mgmt revs down 13% q/q, given seasonally weaker performance fees ($140M vs. $344M in 4Q);
  4. Small DVA loss of $77M;
  5. Share count ticked higher q/q; &
  6. Macro & regulatory headwinds remain.


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