You’d think Goldman Sachs (GS, Financial) would be basking in a celebratory stock rally on the heels some of the best quarterly earnings in recent years.
Not so. The stock of the vaunted Wall Street firm plunged more than 1.5% to $254 a share for most of trading on Tuesday, even as shares of its competitors, like Bank of America (BAC, Financial), JPMorgan Chase (JPM, Financial), Wells Fargo (WFC, Financial) and Citigroup (C, Financial), were in the green. (By late afternoon, everyone had taken a dip into the red, however, Goldman was down 2% to below $253 a share.)
In recent years, Goldman has been an underperformer in a sea of more agile players, like JPMorgan Chase and Bank of America.
Year to date, the global investment bank’s stock is flat. It increased 18% over the last year while the shares of some of its competitors climbed more than 30%.
Early this year, its underachiever reputation was amplified after reports that CEO Lloyd Blankfein got a 9% pay increase to $24 million in 2017, after the firm had turned major losses in earnings and trading revenue.
Critics compared Blankfein’s pay to colleagues who they said made less and produced better results.
An improvement on first-quarter results
The bank’s fundamentals reflected improvements in trading revenues, as well as key financial health indicators.
Goldman reported diluted earnings of $6.95 per share on net revenues of $10 billion, a record profit, the bank said, in three years. A consensus of six forecasts predicted far less success on diluted earnings of $5.67 per share.
By comparison, in the final months of the year, the bank saw an earnings loss of $5.51 per share on net revenues of $7.8 billion. It also experienced drops in total trading revenue, including its stock-trading division and bond-trading returns, as a result of low market volatility last year.
This year, however, it saw improvements in stock and bond-trading revenue as market volatility created additional expenses for traders.
Federal tax law also turned in Goldman’s favor in the early part of the year. In the final months of the year, the bank took a $2.1 billion hit to net earnings as part of a $5 billion provision under the U.S. Tax Cuts and Jobs Act. In the first quarter, that turned into a $2.7 billion gain.
Whopping compensation increases
The first quarter of the year also indicated a trend for increases in employee compensation, including salaries, estimated year-end discretionary compensation and other awards.
The bank reported $6.62 billion in operating expenses, a whopping 40% increase from the fourth quarter of 2017, which the bank says was “due to significantly higher compensation and benefits expenses and higher non-compensation expenses.”
Goldman has hired more employees in recent years.
It reported 37,300 employees in the first-quarter compared to 36,600 in the prior-quarter and 34,100 in the three months that ended March 31, 2017.
Other good news
The bank also hit a new milestone in its return on shareholder equity, hitting 15.4%, the highest it’s been in over five years. Book value per common share in the quarter reached $186.73, up 3.2%.
Interest income also was up to $4.2 billion compared to the prior quarter of $3.7 billion. The difference was a gain of $918 million compared to the prior quarter’s $896 million.
It said, for example, $1.79 billion in net revenues for investment banking included the second-highest quarterly net revenues in debt underwriting.
Goldman also announced that it was increasing its quarterly dividend to 80 cents per common share.
Assets under supervision stood at $1.5 trillion.
The bank has a market cap of $94 billion.
Upcoming retirement
President and co-chief operating officer Harvey Schwartz is retiring, effective April 20, the company announced earlier this year.
David Solomon will serve as sole president and chief operating officer of the firm upon Schwartz’s retirement.
