Goldman Sachs beats profit estimates, weak fixed income trading drags down shares

The logo for Goldman Sachs appears above a trading post on the floor of the New York Stock Exchange, Tuesday, July 13, 2021. THE CANADIAN PRESS/AP-Richard Drew

Goldman Sachs beat expectations for quarterly profit on Monday, driven by strength in dealmaking and equities trading, but the U.S. investment bank’s shares fell 1.9 per cent on weakness in its fixed income, currencies and commodities division.

Revenue from the division fell 10 per cent to $4.01 billion in the first quarter, hit by a slowdown in interest rate trading, mortgages and credit products.

“The stock is weak due to the disappointment in FICC trading, in our view,” RBC Capital Markets analyst Gerard Cassidy said.

Shares in Goldman Sachs opened 4 per cent lower, but pared some losses after CEO David Solomon expressed optimism about the outlook for dealmaking despite the volatility caused by the war in Iran and concerns around AI-driven disruption.

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“The environment for investment banking activity continues to be incredibly robust, particularly M&A activity,” Solomon said on an earnings call. “While market conditions tempered execution for IPOs and sponsor activity broadly, we believe that activity levels will rebound once conditions stabilize.”

Goldman Sachs kicked off the earnings season for U.S. banks this week. JPMorgan Chase JPM.N, the largest U.S. lender, will report on Tuesday along with Wells Fargo WFC.N and Citigroup C.N. Bank of America BAC.N and Morgan Stanley MS.N will report on Wednesday.

The bank’s equities trading business had a record quarter, with revenue from trading intermediation and financing rising 27 per cent to $5.33 billion.

Global markets have been roiled by the Iran war as rising crude oil prices fan inflation fears and exacerbate worries about a recession.

The heightened volatility in the equities market has prompted clients to reassess portfolios and hedge downside risks, buoying equity trading desks at large banks.

Overall, profit per share stood at $17.55, beating analysts’ average estimate of $16.49, according to data compiled by LSEG.

M&A MARKET RESILIENT

Wall Street executives expect a strong year for mergers and acquisitions despite the current uncertainty from the Middle East conflict, as a softer stance on regulations under President Donald Trump’s administration and the artificial intelligence boom are likely to underpin much of the activity.

Global M&A volumes hit $1.38 trillion in the first quarter, according to data compiled by Dealogic. Analysts at Jefferies noted that global M&A proxy fees rose 19 per cent year-over-year to $11.3 billion, with Goldman leading the pack in market share.

The investment bank worked on some large deals in the first quarter, including advising Unilever ULVR.L on the planned merger of its food business with McCormick MKC.N to create a $65 billion company, and Equitable’s EQH.N proposed tie-up with Corebridge CRBG.N to form a $22 billion insurer.

Its fees from investment banking rose to $2.84 billion in the first quarter, a 48 per cent jump from a year ago.

“Investment banking trends were healthy as large-cap deal activity carried M&A transaction flow, while blockbuster IPOs remain in the summer and fall queue,” said Stephen Biggar, a banking analyst at Argus Research.

BIG IPOs AWAITED

The IPO market has been hit by renewed uncertainty fueled by geopolitical tensions that have hurt risk appetite in equities, but some companies, especially those in industrials and defense, have pressed ahead with their listing plans.

Goldman has secured a spot as one of the lead banks managing SpaceX’s blockbuster IPO expected in June, according to a Reuters report. The Elon Musk-led firm could raise $75 billion at a valuation of $1.75 trillion.

The listing is expected to set the stage for a flurry of bumper offerings this year, including the potential IPOs of OpenAI and Anthropic.

Goldman was among the joint book-running managers in PayPay’s $880 million U.S. IPO, which valued the SoftBank-backed firm at $10.7 billion.

ASSET MANAGEMENT BUSINESS STURDY

Goldman’s revenue from assets and wealth management rose 10 per cent to $4.08 billion. The bank has prioritized the business to generate steadier income, reducing its reliance on more volatile trading and investment banking revenue.

The firm’s private credit fund, housed under the division, defied an industry-wide spike in redemptions last week, where investors sought to repurchase just under 5 per cent of shares in the first quarter - redemptions that did not breach its cap.

The firm raised $10 billion in private credit for its clients, with Solomon saying he feels good about long-term opportunity in private credit and its ability to deliver attractive “risk-adjusted” returns for clients.

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Fears that artificial intelligence could erode software companies’ earnings and weaken their ability to service debt have rattled the multi-trillion-dollar private credit industry, prompting investors to seek liquidity with a rush of withdrawals.

Goldman completed its acquisition of active exchange-traded fund provider Innovator Capital Management earlier this month, lifting its total ETF assets under supervision to $90 billion.

Shares of the Wall Street giant had risen more than 3 per cent before Monday’s decline so far this year, after a 53 per cent jump in 2025.

The good news is “more than priced in and that the absence of a material increase in investment banking activity over a sustained period and a cooldown in market performance could lead to disappointment and a sharp correction,” said Saul Martinez, head of U.S. financials research at HSBC, which has a reduced rating on the stock.

(Reporting by Utkarsh Shetti in Bengaluru and Saeed Azhar in New York; Additional reporting by Tatiana Bautzer; Editing by Anil D’Silva, Nick Zieminski, Rod Nickel)