3 Reasons Why Goldman Sachs Underperformed

 

Goldman Sachs witnessed an embarrassing first quarter result this year. The century and a half old Wall Street giant traded weak. Analysts were surprised at the firm’s performance, especially in times when Citibank and Bank of America are boosting profits. Low trading volume and volatility were blamed for the under performance. Martin Chavez, the incoming Chief Financial Officer at Goldman said, “We did under perform and the performance was driven by commodities and currencies.” He added that the firm failed to navigate the market. However, he remains assured of a good year saying that a bad quarter does not affect the long-standing franchise. Here are 3 reasons why Goldman Sachs took the Wall Street by surprise.

Goldman Sachs

Missed Earnings

 

Goldman Sachs Group Inc NYSE: GS is the fifth largest bank in the US by asset value. The bank has beaten the earnings target of Wall Street 9 times out of 10. This time, it not only missed the top-line revenue figures but also managed to miss the bottom-line profits. The EPS rested at $5.15 against an estimated $5.31. Similarly, the revenue figure stood at $8.026 billion against an estimated $8.446 billion. This made the stock fall to a 4 and a half month low. These figures are rare as the bank has set the gold standard for performance on Wall Street.

Fixed Income Woes for Goldman Sachs

 

Goldman’s fixed income woes do not seem to go as of now. Revenues in the segment remained flat as compared to quarter 1 of 2016. This is not all, the first quarter revenues in this sector fell by 16 percent from the last quarter. This category includes vital fixed income assets like bonds, currencies, and commodities. This is especially worrying as other institutions are making massive gains in the same sector. They have strong numbers in debt instruments, especially bonds. FICC declines are being called the major culprits for Goldman as other banks make merry with debts.

No Big Deals

 

The IPO pipeline for the year is dry and unexciting and Goldman could not hit major deals in the first quarter as well. Mergers and acquisitions have fallen by a staggering 55 percent since the last quarter. The company reported revenue of $13.4 billion during the quarter. Of this, $3.9 billion came from the Snap IPO. We see that IPO volumes surged during the quarter but it was mainly due to the Snap IPO. There is nothing interesting for the rest of the year. The competition is getting intense and the big fish are winning it all.

The company’s shares are down by 9 percent this year. This rare underperformance has pulled the Dow Jones Industrial average down. The long-term effects of this embarrassing quarter are not yet weighed but CEO Lloyd Blankfein seems assured of a good future. He said that Goldman is ‘well-positioned’. He mentioned that it is a rare occurrence and Goldman will be back on its feet soon. Meanwhile, the shares were punished as many analysts have now given Goldman a hold rating.

 

Ben Myers

Ben began his long career in international finance and investing after graduating with a degree in Finance & Accounting. Prior to founding a financial advisory firm he worked with multi-national institutions including HSBC and Bank of Ireland. After several stints as a chief analyst at forex/binary options companies Ben still remains a keen trader and featured contributor on numerous financial sites.