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Goldman Sachs had a MASSIVE quarter (GS)

REUTERS/Lucas Jackson
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Goldman Sachs had a huge quarter, beating analysts’ expectations across the board.
For the first quarter, adjusted earnings per share came in at $6, according to Bloomberg. Analysts had expected the bank to report adjusted earnings per share of $4.26.
Revenue for the first quarter came in at $10.62 billion. Analysts were anticipating $9.31 billion for revenue.
“We are pleased with our results this quarter and the fact that all of our major businesses contributed,” Goldman CEO Lloyd Blankfein said in the release. “Given more normalized markets and higher levels of client activity, we remain encouraged about the prospects for continued growth.”
Revenue for Fixed Income Currencies and Commodities (FICC), a trading division, also beat, coming in at $3.13 billion versus analysts’ estimates of $2.92 billion.
Goldman also crushed it on its equities business, with $2.33 billion in revenue versus estimates of $1.74 billion.
Investment banking killed it, too, with revenue — which includes mergers acquisitions — of $1.91 billion versus estimates of $1.69 billion.
Shares of Goldman are trading higher in the premarket. They were last up $2.65, or 1.32% at about $203.75. (By the way, they haven’t traded above the $200 range since 2008.)
Here’s the earnings release:
The Goldman Sachs Group, Inc. (GS) today reported net revenues of $10.62 billion and net earnings of $2.84 billion for the first quarter ended March 31, 2015. Diluted earnings per common share were $5.94 compared with $4.02 for the first quarter of 2014 and $4.38 for the fourth quarter of 2014. Annualized return on average common shareholders’ equity (ROE) (1) was 14.7% for the first quarter of 2015.
Highlights
Goldman Sachs generated net revenues of $10.62 billion, the highest quarterly result in four years.
The firm ranked first in worldwide announced and completed mergers and acquisitions for the year-to-date, and also ranked first in worldwide equity and equity-related offerings and common stock offerings for the year-to-date. (2)
Investment Banking produced net revenues of $1.91 billion, which is the highest quarterly performance since 2007.
Institutional Client Services generated net revenues of $5.46 billion, which included the highest quarterly performance in equities client execution since 2010.
Book value per common share increased $5.38 during the quarter to $168.39, the largest quarterly increase in over five years.
The firm continues to maintain strong capital ratios and liquidity. As of March 31, 2015, the firm’s Common Equity Tier 1 ratio (3) as computed in accordance with both the Standardized approach and the Basel III Advanced approach was 11.4% (4) and 12.6% (4), respectively. In addition, the firm’s global core liquid assets (5) were $175 billion (4) as of March 31, 2015.
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“We are pleased with our results this quarter and the fact that all of our major businesses contributed,” said Lloyd C. Blankfein, Chairman and Chief Executive Officer. “Given more normalized markets and higher levels of client activity, we remain encouraged about the prospects for continued growth.”
Net Revenues
Investment Banking
Net revenues in Investment Banking were $1.91 billion for the first quarter of 2015, 7% higher than the first quarter of 2014 and 32% higher than the fourth quarter of 2014. Net revenues in Financial Advisory were $961 million, 41% higher than the first quarter of 2014, reflecting strong client activity, particularly in the United States. Industry-wide completed mergers and acquisitions increased compared with the same prior year period. Net revenues in Underwriting were $944 million, 14% lower than a strong first quarter of 2014, reflecting significantly lower net revenues in debt underwriting,

principally due to a decline in leveraged finance activity. Net revenues in equity underwriting were higher, reflecting a significant increase in net revenues related to secondary offerings, partially offset by a decrease in net revenues from initial public offerings. The firm’s investment banking transaction backlog decreased compared with the end of 2014, but was significantly higher compared with the end of the first quarter of 2014. (6)
Institutional Client Services
Net revenues in Institutional Client Services were $5.46 billion for the first quarter of 2015, 23% higher than the first quarter of 2014 and 73% higher than the fourth quarter of 2014.
Net revenues in Fixed Income, Currency and Commodities Client Execution were $3.13 billion for the first quarter of 2015, 10% higher than the first quarter of 2014, due to significantly higher net revenues in currencies and interest rate products, partially offset by significantly lower net revenues in credit products, commodities and mortgages. During the quarter, Fixed Income, Currency and Commodities Client Execution operated in an environment generally characterized by higher volatility levels, which contributed to higher client activity levels, particularly in currencies and interest rate products, and improved market-making conditions compared with the fourth quarter of 2014.
Net revenues in Equities were $2.33 billion for the first quarter of 2015, 46% higher than the first quarter of 2014, due to significantly higher net revenues in equities client execution, reflecting strong results in both derivatives and cash products across all major regions. In addition, securities services net revenues were higher, reflecting the impact of higher average customer balances. Commissions and fees were slightly lower compared with the first quarter of 2014. During the quarter, Equities operated in an environment generally characterized by more favorable market-making conditions, generally higher global equity prices and strong client activity levels.
The fair value net loss attributable to the impact of changes in the firm’s credit spreads on borrowings was $44 million ($32 million and $12 million related to Fixed Income, Currency and Commodities Client Execution and equities client execution, respectively) for the first quarter of 2015, compared with a net gain of $15 million (all related to Fixed Income, Currency and Commodities Client Execution) for the first quarter of 2014.
Investing Lending
Net revenues in Investing Lending (7) were $1.67 billion for the first quarter of 2015, 9% higher than both the first quarter of 2014 and the fourth quarter of 2014. Results for the first quarter of 2015 included net gains of $1.16 billion from investments in equities, primarily reflecting strong corporate performance and company-specific events in private equities and net gains in public equities. In addition, Investing Lending net revenues included net gains and net interest income of $509 million from debt securities and loans.
Investment Management
Net revenues in Investment Management were $1.58 billion for the first quarter of 2015, essentially unchanged compared with both the first quarter of 2014 and the fourth quarter of 2014. Net revenues in the first quarter of 2015 included slightly higher management and other fees, due to higher average assets under supervision, and lower incentive fees compared with the first quarter of 2014. Total assets under supervision (5) of $1.18 trillion were essentially unchanged compared with the end of 2014. Long-term assets under supervision increased $13 billion, including net inflows of $7 billion, reflecting inflows in equity and fixed income assets, and net market appreciation of $6 billion, primarily in equity assets. Liquidity products decreased $14 billion.
Expenses
Operating expenses were $6.68 billion, 6% higher than the first quarter of 2014 and 49% higher than the fourth quarter of 2014.
Compensation and Benefits
The accrual for compensation and benefits expenses (including salaries, estimated year-end discretionary compensation, amortization of equity awards and other items such as benefits) was $4.46 billion for the first quarter of 2015, 11% higher than the first quarter of 2014. This increase reflected an increase in net revenues, partially offset by a decline in the ratio of compensation and benefits to net revenues from 43.0% for the first quarter of 2014 to 42.0% for the first quarter of 2015. Total staff increased 1% during the first quarter of 2015.
Non-Compensation Expenses
Non-compensation expenses were $2.22 billion for the first quarter of 2015, 3% lower than the first quarter of 2014 and 12% lower than the fourth quarter of 2014. Non-compensation expenses for the first quarter of 2015 included significantly lower depreciation and amortization expenses, primarily reflecting lower impairment charges related to consolidated investments, compared with the first quarter of 2014. This decrease was partially offset by higher other expenses, reflecting an increase in net provisions for litigation and regulatory proceedings, and higher brokerage, clearing, exchange and distribution fees, including an increase in fund distribution fees.
Net provisions for litigation and regulatory proceedings for the first quarter of 2015 were $190 million compared with $115 million for the first quarter of 2014.
Provision for Taxes
The effective income tax rate for the first quarter of 2015 was 27.7%, down from the full year tax rate of 31.4% for 2014, primarily due to changes in the earnings mix.
Capital
As of March 31, 2015, total capital was $248.81 billion, consisting of $85.13 billion in total shareholders’ equity (common shareholders’ equity of $75.93 billion and preferred stock of $9.20 billion) and $163.68 billion in unsecured long-term borrowings. Beginning with the first quarter of 2015, the firm’s capital ratios are computed in accordance with the Federal Reserve Board’s Standardized approach and the Basel III Advanced approach. The lower of these ratios is the binding regulatory capital requirement for the firm. As of March 31, 2015, the firm’s Standardized Common Equity Tier 1 ratio (3) was 11.4% (4) and the firm’s Basel III Advanced Common Equity Tier 1 ratio (3) was 12.6% (4), in each case reflecting the applicable transitional provisions. As of December 31, 2014, these ratios were 11.3% and 12.2%, respectively. The firm’s supplementary leverage ratio (5) on a fully phased-in basis was 5.3% (4) as of March 31, 2015.
On April 15, 2015, the Board of Directors of The Goldman Sachs Group, Inc. increased the firm’s quarterly dividend to $0.65 per common share from $0.60 per common share. The dividend will be paid on June 29, 2015 to common shareholders of record on June 1, 2015.
During the quarter, the firm repurchased 6.8 million shares of its common stock at an average cost per share of $185.18, for a total cost of $1.25 billion. The remaining share authorization under the firm’s existing repurchase program is 18.6 million shares. (8)
Book value per common share was $168.39 and tangible book value per common share (9) was $159.11, both 3% higher compared with the end of 2014. Book value per common share and tangible book value per common share are based on common shares outstanding, including restricted stock units granted to employees with no future service requirements, of 450.9 million as of March 31, 2015.
Other Balance Sheet and Liquidity Metrics
Total assets were $865 billion (4) as of March 31, 2015, compared with $856 billion as of December 31, 2014.
The firm’s global core liquid assets (5) were $175 billion (4) as of March 31, 2015 and averaged $175 billion (4) for the first quarter of 2015, compared with an average of $181 billion for the fourth quarter of 2014.
Level 3 assets were $40 billion (4) as of March 31, 2015, compared with $42 billion as of December 31, 2014, and represented 4.6% of total assets.
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The Goldman Sachs Group, Inc. is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in all major financial centers around the world.
Cautionary Note Regarding Forward-Looking Statements
This press release contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts, but instead represent only the firm’s beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of the firm’s control. It is possible that the firm’s actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. For a discussion of some of the risks and important factors that could affect the firm’s future results and financial condition, see “Risk Factors” in Part I, Item 1A of the firm’s Annual Report on Form 10-K for the year ended December 31, 2014.
Certain of the information regarding the firm’s capital ratios, risk-weighted assets, supplementary leverage ratio, total assets, level 3 assets and global core liquid assets consist of preliminary estimates. These estimates are forward-looking statements and are subject to change, possibly materially, as the firm completes its financial statements.
Statements about the firm’s investment banking transaction backlog also may constitute forward-looking statements. Such statements are subject to the risk that the terms of these transactions may be modified or that they may not be completed at all; therefore, the net revenues, if any, that the firm actually earns from these transactions may differ, possibly materially, from those currently expected. Important factors that could result in a modification of the terms of a transaction or a transaction not being completed include, in the case of underwriting transactions, a decline or continued weakness in general economic conditions, outbreak of hostilities, volatility in the securities markets generally or an adverse development with respect to the issuer of the securities and, in the case of financial advisory transactions, a decline in the securities markets, an inability to obtain adequate financing, an adverse development with respect to a party to the transaction or a failure to obtain a required regulatory approval. For a discussion of other important factors that could adversely affect the firm’s investment banking transactions, see “Risk Factors” in Part I, Item 1A of the firm’s Annual Report on Form 10-K for the year ended December 31, 2014.


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