Goldman Equity Traders Fuel Record Quarter Amid Reddit Mania
(Bloomberg) -- Goldman Sachs Group Inc. cashed in on another roaring period for its traders and investment bankers, with revenue and earnings rising to a record in a quarter marked by the Reddit-fueled stock-market mania.
The bank’s traders delivered their strongest performance in more than a decade, with a 47% surge in revenue, led by a jump in equities. Goldman’s dealmakers joined the party, with a 73% surge in investment-banking fees in the first quarter. That bonanza was anchored by revenue from equity underwriting, which quadrupled amid a red-hot market for special purpose acquisition companies and tech-company stock offerings.
Investors will look for signs of how long initial public offerings and trading will keep the machine roaring at the investment bank, which has had an extraordinary run through the Covid-19 crisis. In the year since the deadly pandemic first disrupted the global economy, Goldman Sachs has benefited from the resulting surge in market volatility and companies tapping wide-open capital markets.
Goldman’s stock had climbed 24% this year through Tuesday, reaching an all-time high of $348.81 last month. The shares rose 3% at 9:47 a.m. in New York after quarterly revenue came in at $17.7 billion and earnings rose to $6.84 billion, the bank said Wednesday in a statement.
The bank also set aside more than $6 billion for compensation and benefits, an 87% surge. That figure could always be reeled back in subsequent quarters, but for now offers a hopeful sign for a workforce that has seen some of its top performers lured away to the buy side with the promise of bigger paydays.
The firm’s trading group clocked its best performance since 2010, with net revenue of $7.58 billion, led by the $3.69 billion from equities traders, a 68% surge. That far exceeded the $5.35 billion in trading-division revenue that analysts expected.
The day-trading Reddit crowd helped turn the first quarter of 2021 into one of the wildest periods for the stock market in modern history with their embrace of companies now known as meme stocks.
Goldman had managed to avoid the debris from the collapse of Bill Hwang’s Archegos Capital Management, even as rival Credit Suisse Group AG has said it expects almost $5 billion in losses from its exposure to the family office. Goldman was one of the banks able to offload its Archegos holdings relatively quickly, allowing it to emerge unscathed from the debacle.
Fees from helping put together deals for companies rose 43% to $1.12 billion. That, along with $1.57 billion in equity underwriting, helped propel total investment-banking revenue to a record $3.77 billion. The strength in the equity capital markets business was evidenced by how comfortably Goldman breezed past the lofty estimates from analysts, who expected that business’s revenue to triple to $1.11 billion.
But Goldman’s outperformance came at the expense of overworked bankers. Making the rounds on social media last month was a stinging deck put together by a group of junior Goldman Sachs bankers highlighting the 100-hour weeks they were putting in to lock in big profits for the firm. The presentation attracted the attention of peers across the industry, financial meme accounts and even the archbishop of Canterbury, who weighed in on the matter.
The SPAC boom is also facing pressure from another prominent entity, as the Securities and Exchange Commission is cracking down on how accounting rules apply to a key element of blank-check companies. That could gum up the process for new deals hitting the market and slow down the torrid pace of SPAC deals.
Even in a period of big gains, Goldman has been buffeted by continued attrition in its senior ranks. The departures have been most noticeable in its nascent consumer-banking division, Marcus, which has lost its chief as well as other senior leaders. Goldman did crack $100 billion in consumer deposits, even as the pace of growth has slowed after getting a lift from the industry’s deposit windfall last year.
Asset-management revenue surged to a record $4.61 billion, backed by a surge in equity investments.
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