Sunday, 16 June 2019

Goldman, Citi see equities trading slump, but buoyant M&A

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Goldman Sachs’ trading revenues for fixed income and equities slumped 18% in the first quarter, dragging the US investment bank’s revenues down 13% from a year earlier despite a surge in fees for advising on mergers and acquisitions.

Rival Citigroup fared far better in fixed income trading, where revenues were up 1%, and enjoyed an even sharper surge in M&A advisory revenues, although it also had a bad quarter in equities.

Goldman said its revenues from fixed income, currency and commodities trading fell 11% from a year earlier to US$1.84bn in the January-March quarter.

Its equities trading revenues tumbled 24% year-on-year to US$1.77bn.

Goldman’s investment banking revenues fared better, led by a strong showing in M&A advisory, where fees jumped 51% from a year ago to US$887m. The bank said it ranked first for fees from global M&A in the quarter.

Total investment banking revenues were up 1% from the first quarter of 2018 at US$1.81bn, as the buoyant M&A performance was offset by an 18% drop in debt underwriting revenues and a 34% fall in equity capital markets.

Goldman reported net earnings of US$2.18bn for the first quarter, down 20% from US$2.74bn in the first quarter of 2018. Net revenues of US$8.81bn in the first quarter were down 13% from a year earlier, but up 9% from the fourth quarter of 2018.

The bank reported a return on tangible equity of 11.7% for the quarter on an annualised basis.

Its operating expenses were US$5.86bn in the latest quarter, down 11% from a year ago due to “significantly lower compensation and benefits expenses” due to its weak performance. That was despite adding 1,900 staff in the past year, to 35,900 at the end of March.

Banks are expected to report weak trading results for the first quarter after tough market conditions at the end of last year extended into January and February. Conditions stabilised and improved in March, bankers said.

Citigroup’s FICC revenues nudged 1% higher to US$3.45bn in the first quarter, rebounding 77% from the weak fourth quarter.

But its equities revenues fell to US$842m in the latest quarter, down 24% from a year earlier.

Citi’s investment banking revenues jumped 20% on the year to US$1.35bn, led by a 76% surge in M&A revenues - albeit from a low level at the start of 2018.

Debt underwriting revenues rose 15% from a year earlier, while it also suffered a weak quarter for ECM with revenues down 20%.

Market leader JP Morgan on Friday reported its FICC revenues fell 18% from a year earlier to US$3.73bn and equities trading fell 14% to US1.74bn. JP Morgan is attempting to displace Goldman as the number two bank in equities.

JP Morgan’s investment banking revenues rose 9% to US$1.8bn, as a 21% rise in debt capital markets revenues and a 12% improvement in M&A advisory fees offset a 23% drop in ECM revenues.


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