Goldman Sachs crushes analysts’ estimates on stronger-than-expected inventory buying and selling, funding banking

David Solomon, chief executive officer of Goldman Sachs & Co., speaks during a Bloomberg Television interview at the Milken Institute Global Conference in Beverly Hills, California, U.S., on Monday, April 29, 2019.

Patrick T. Fallon | Bloomberg | Getty Images

Goldman Sachs on Tuesday beat analysts’ expectations for fourth-quarter profit and revenue on strong performance from the firm’s equities traders and investment bankers.

The bank posted earnings of $12.08 a share, crushing the $7.47 estimate of analysts surveyed by Refinitiv. Revenue of $11.74 billion exceeded expectations by about $1.75 billion.

Shares of the New York-based bank jumped 2% in premarket trading.

“We were able to help clients navigate a difficult environment, and, as a result, achieved strong results across the franchise, while advancing our strategic priorities,” CEO David Solomon said in the release. “We hope this year brings much needed stability and a respite from the pandemic, but we remain ready to handle a wide range of outcomes and are poised to meet the needs of our clients.”

Expectations were running high for Solomon. Last week, JPMorgan Chase posted record fourth-quarter trading and advisory results that helped the bank beat profit estimates.

At Goldman, equities traders produced a 40% bump in revenue from a year earlier to $2.39 billion, exceeding the $1.89 billion estimate by roughly half a billion dollars. But like most of its rivals, fixed-income operations missed expectations for the quarter, producing $1.88 billion in revenue, below the $2.06 billion estimate.

Investment banking revenues rose 27% to $2.61 billion, exceeding the $2.15 billion projection, on higher revenues in stock underwriting and completed mergers transactions, the firm said.

“Goldman Sachs’ earnings were shockingly good,” said Octavio Marenzi, CEO of capital markets management consultancy Opimas. “We were expecting a strong performance, but Goldman outperformed in almost every business line. … Goldman’s activities are squarely focused on investment banking and trading, areas that did well everywhere, but especially well at Goldman.”

In a separate presentation, Goldman said it had made progress against goals given a year ago at its first ever Investor Day, and reiterated that it was committed to its medium and long term targets.

Of the six biggest U.S. banks, Goldman gets the largest share of its revenue from Wall Street activities, including trading and investment banking. For the past few years, that has been a detriment to the firm as retail banking has driven the industry’s record profits. Now, Goldman’s model is proving to be an advantage.

Wide-open markets, thanks to the Federal Reserve’s unprecedented actions earlier in the year, are expected to help usher in the best year for trading on Wall Street since the Great Recession. Meanwhile, investment bankers are benefiting from surging demand for IPOs and a record spate of debt issuance.

Goldman’s investment banking division produced record revenue in 2020 of $9.42 billion, thanks to elevated stock and bond underwriting. And the firm’s trading division posted its highest annual revenue in a decade, a 43% jump from 2019, on surging activity across markets.

Goldman shares climbed 11% in 2020, besting the 4.3% decline of the KBW Bank Index.

Here are the numbers:

Earnings: $12.08 a share, vs. $7.47 per share expected, according to Refinitiv.
Revenue: $11.74 billion, vs. $9.9 billion estimate.

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