By Parth Parikh,
Money and Investing Writer
Goldman Sachs (NYSE: GS) is widely known as one of the top banks in the world. With 34 thousand employees and a worldwide presence, many look at Goldman Sachs as the premier financial company and the upper echelon of multinational firms.
On Tuesday, though, Goldman Sachs gave investors and the general public a shock when their first quarter of 2017 earnings were released. In it, Goldman reported earnings of $5.15 per share, less than their expected price of $5.33 per share.
The steep decline in share price was followed with a drop in revenue, from a projected $8.32 billion to a reported $8 billion. Goldman’s earnings was categorized by analysts as a disappointment, while other top banks like JP Morgan Chase (NYSE: JPM), Citigroup (NYSE: C) and Bank of America (NYSE: BAC) posted positive earnings, beating estimates.
News of this earnings miss reached the markets and shook investors in the early trading hours. The New York Stock Exchange closed at 11,427 points Monday afternoon but immediately fell to 11,371 by the opening bell, finishing the day at 11,378. As for the Goldman Sachs stock, the share price of the stock, initially priced at $228, fell to $218 by the opening bell and fell as low as $213 by midday trading. At the closing bell, Goldman reached $215, resulting in a 5.7 percent dip throughout the day.
One of the biggest surprises within the earnings report came from the fixed income, currencies and commodities division, where the $1.7 billion revenue gain only amounted to a 1 percent gain compared to the first quarter of 2016, and decreased 16 percent compared to the fourth quarter of 2016.
This slight increase can be credited to the FICC, the Fixed Income Clearing Corporation, and their lack of trading revenue. Many believe the FICC’s 2 percent year over year decline hurt many banks’ fixed income departments, as all major banks rely on the FICC to clear and process their fixed income assets.
Another section of Goldman Sachs that did not match its expectations was its Investing and Lending Revenue division, which made $1.5 billion but fell 1 percent in comparison to the fourth quarter of 2016. The bright side of the dip in Investing and Lending is that compared to the first quarter of 2016, this quarter went significantly better.
Other aspects of the earnings report did very well, including the Investment Banking revenue, which went up 16 percent year over year, and Investment Management, which went up 12 percent year over year, while some portions did not do well, like the Equities sector that made $1.7 billion, a 6 percent drop year over year.
The reactions from the Goldman Sachs board claimed the main reason for the poor earnings report as a whole came from a lack of orders from clients and a relatively weak market that has not offered much opportunities.
Ever since the Trump rally that brought the New York Stock Exchange up 1,131 points since Election Day, the markets have fallen 337 points since then. Many anxious investors are looking to Washington to see how the Trump White House will affect global markets, which in turn, causes investors to sell more than buy.
As the Trump administration reaches 100 days in office, time will tell if the markets start to heat up again and if that will mean better results from Goldman Sachs going forward.
A version of this article appeared in the Tuesday, April 25th, 2017 print edition.
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