Goldman Sachs's stock jumps 3% after first-quarter earnings crush estimates

By Ciara Linnane

Actions to refocus strategic focus 'and play to core strengths' boosted earnings, says CEO

Goldman Sachs Group Inc.'s stock rose 3% Monday, after the bank posted stronger-than-expected first-quarter earnings, boosted by a rebound in investment banking as deal flow improved and continued growth in managing money for its well-heeled clients.

The New York-based bank (GS) blew past analysts' estimates with net income of $3.93 billion, or $11.58 a share, for the quarter, up from $3.09 billion, or $8.79 a share, in the year-earlier period. Revenue rose to $14.213 billion from $12.224 billion a year ago.

The FactSet consensus was for EPS of $8.73 and revenue of $12.40 billion.

Chief Executive David Solomon told analysts on the company's earnings call that the quarter was helped by the actions taken last year to narrow Goldman's strategic focus "and play to core strengths."

That's after Goldman realigned its businesses into three main units: Global Banking & Markets, Asset & Wealth Management and Platform Solutions.

The bank is operating in a "complex operating environment," but appears to be in the early stages of a reopening of capital markets, he said.

"There were a number of large IPOs across geographies," and the positive reception is a sign that risk appetite is growing, he said. Tighter spreads have fueled a positive environment for debt issuance and refinancing "was a major theme with robust high-yield and institutional-loan refinancing volumes."

The bank is expecting M&A activity to continue to pick up and for debt underwriting to continue, he added.

Against that background, investment-banking revenue rose 32% to $2.085 billion from $1.578 billion, driven by debt underwriting and leveraged finance activity, a rise in advisory fees as M&A activity picked up and equity underwriting from both IPOs and secondary offerings.

Global banking and markets generated revenue of $9.73 billion, boosted by strength in investment banking, fixed income, currency and commodities, and equities.

Read also: JPMorgan, Wells Fargo, Citi stocks drop despite robust first-quarter earnings

Net revenues in FICC rose 10% to $4.32 billion, due to "significantly" higher net revenues in FICC financing, driven by mortgages and structured lending.

Net revenue from equities rose 10% to $3.31 billion, driven by higher revenues in derivatives and slightly higher revenue from equities financing.

Net revenue in asset and wealth management rose 18% to $3.79 billion. That was mostly due to increased private-banking and lending revenue.

Investment-management revenue rose to $2.491 billion from $2.289 billion, commissions and fees edged down to $1.077 billion from $1.088 billion, and market-making revenue rose to $5.992 billion from $5.433 billion.

The bank's provision for credit losses was $318 million, compared with a net benefit of $171 million for the year-ago quarter. That benefit stemmed from the partial sale of the company's retail business Marcus and the accompanying reserve reduction.

Provisions for the first quarter of 2024 related to the credit card portfolio and wholesale loans.

Goldman began to pull back from consumer lending in 2023 after concluding that it had tried to do "too much too quickly" as it disclosed a $3 billion loss on the overall consumer business.

Also read: Goldman Sachs CEO David Solomon says he doesn't recognize 'caricature' that critics have painted of him

In the first quarter, it completed the sale of its specialty lender GreenSky to private-equity investors led by Sixth Street. That led to a net loss of $99 million at the Platform Solutions business, which houses consumer lending.

The bank announced the sale in October without disclosing a sale price. Goldman acquired GreenSky for $1.7 billion in 2021.

JMP Securities analysts said the numbers were the "first relatively clean quarter in a year and the firm's best EPS quarter since 3Q21."

Analysts led by Devin Ryan reiterated their market outperform rating and $460 price target that's about 15% above the current price.

"Over the course of much of the last two years, we believe "noisy" results against an anemic capital markets backdrop coupled with the effects of exiting certain investments and businesses have shadowed what we believe has been a strong underlying story at the company," the analysts wrote.

Specifically, JMP believes Goldman has been expanding wallet share in its global banking and markets business compared to its peers. Since Solomon took over in 2019, the company has picked up about 250 basis points of wallet share, according to JMP estimates.

The stock has gained 1% in the year to date, while the S&P 500 has gained 7.4%.

-Ciara Linnane

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04-15-24 1354ET

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