Goldman profit smashes forecasts on booming investment banking

Goldman Sachs Group Inc on Wednesday easily beat Wall Street expectations for first-quarter profit, as the US investment bank capitalized on record levels of global dealmaking activity and a coronavirus-driven boom in stock market trading.

Overall investment banking revenue rose 73% to $3.77 billion, its highest since 2010, while equities trading surged 68% as a jump in trading by ordinary investors fed stock market volatility.

Global investment banking fee hit an all-time record of $39.4 billion during the March quarter, according to Refinitiv data.

Goldman also comfortably held on to its top ranking on the league tables for worldwide M&A advisory. The league tables by Refinitiv rank financial services firms on the amount of M&A fees they generate.

An unprecedented boom in private firms merging with listed shell companies to go public has helped the Wall Street giant earn handsome fees from such deals.

The massive 47% jump in trading revenue was in line with the broader gains for trading desks across Wall Street and was a result of the volatility generated by a surge in retail trading of “meme stocks” like GameStop.

The bank also benefited from favorable comparisons to last year when it set aside more funds to cover potential corporate loan losses due to the pandemic and took markdowns to some assets.

Financial advisory revenue came in at $1.1 billion.

Net earnings applicable to common shareholders rose to $6.7 billion in the quarter ended March 31 from $1.12 billion in the same period a year ago.

Earnings per share rose to $18.60 from $3.11 a year earlier. Analysts on average had expected a profit of $10.22 per share, according to the IBES estimate from Refinitiv.

Goldman had said in March that its losses from a fire sale of stocks triggered by a meltdown of New York investment fund Archegos were immaterial.

Total revenue surged 102% to $17.7 billion in the quarter.

Goldman said debt underwriting was helped by strong leveraged finance and asset-backed activity, while equity underwriting was boosted by a red-hot IPO market.

Unlike rivals such as JPMorgan and Bank of America , Goldman has a relatively smaller consumer business, which has limited its exposure to loan defaults and allowed it to focus on its core strength in investment banking and trading. (Reporting by Anirban Sen in Bengaluru and Matt Scuffham in New York; Editing by Arun Koyyur)

JPMorgan Chase & Co’s earnings jumped almost 400% in the first quarter, blowing past estimates as the largest U.S. bank released more than $5 billion in reserves it had set aside to cover coronavirus-driven loan defaults.

The bank, widely seen as a barometer of the health of the broader U.S. economy, said consumer spending in its businesses had returned to pre-pandemic levels and was up 14% versus the first quarter of 2019.

The results, helped by favorable comparisons to last year, also gained from a 57% jump in investment banking revenue.

While the largest US bank saw profits crimped last year with the economic effects of the pandemic, investors are optimistic that a recovery this year on the back of President Joe Biden’s $1.9 trillion stimulus package and widespread vaccinations could restore normalcy.

“We believe that the economy has the potential to have extremely robust, multi-year growth,” Chief Executive Officer Jamie Dimon said in a statement. “Our credit reserves of $26 billion are appropriate and prudent, all things considered.”

The bank’s net income rose to $14.3 billion, or $4.50 per share, in the quarter ended March 31, from $2.9 billion, or 78 cents per share, a year earlier.

Analysts on average had expected earnings of $3.10 per share, according to Refinitiv.

Revenue jumped 14% to $33.1 billion.

JPMorgan changed its full-year outlook, saying it expects expenses to be slightly higher and net interest income to be lower. Revenue-related expenses rose in the first quarter, while interest rates remained near historic lows.

Investment banking revenue surged to $2.9 billion on record levels of capital markets activity, fueled largely by a surge in initial public offerings by special purpose acquisition companies.

Wall Street’s boom has also been driven by record volumes of fundraising, debt refinancings, convertible bond deals and stock sales.

During the quarter, JPMorgan overtook investment banking powerhouse Morgan Stanley to become the banking world’s second biggest provider of worldwide M&A advisory, according to Refinitiv. The league tables rank financial services firms by the amount of M&A fees they generate. Goldman Sachs continues to lead the rankings.