Goldman Sachs has posted its best ever quarter as its dealmaking revenues surged amid a boom in blank cheque companies and the trading bonanza on Wall Street continued.
Goldman Sachs more than doubled revenues to $17.7bn in the first quarter, way ahead of the $12.5bn expected by analysts, on the back of surging performance within its traditional business lines, despite a shift towards new products under chief executive David Solomon. Net income of $6.84bn was up by 464% on the same period in 2020.
The US banking giant’s costs surged as the money it put aside for bonuses and other compensation expenses hit $6bn in the first quarter — an 87% increase on the same period in 2020, which it said was “reflecting strong performance”. This is nearly half the $13.3bn it paid out in compensation for the entire of last year — a 10-year high.
“We have been working hard alongside our clients in preparation for a world beyond the pandemic and a more stable economic environment,” said Solomon in a statement. “Our businesses remain very well positioned to help our clients reposition for the recovery, and that strength is reflected in the record revenues and earnings achieved this quarter.”
The fixed income division of Goldman surged throughout 2020, as Covid-19 provided the market volatility investment banks have craved for years. The unit increased by 31% to $3.9bn in the first quarter of this year, reversing a slowdown seen across the sector in the final three months 2020. Equities trading was up by 68% to $3.7bn, beating sharp gains in the unit also seen at rival JPMorgan. Overall markets revenues were $7.6bn at Goldman, a 47% increase.
While the trading boom has continued, investment banking fees have surged to record levels during the first quarter to $32.9bn, according to data provider Dealogic.
Solomon said during the bank’s earnings call that the first quarter was “extraordinary”. “I will say that activity levels continue to be elevated,” he added. “From what I would say was a pre-Covid level by a meaningful amount.”
Goldman’s equity capital markets unit, which include its bankers advising on so-called blank cheque companies, was up by 315% to $1.6bn, the best ever quarter for the unit. Special purpose acquisition companies, or Spacs, have surged to unprecedented levels this year, with $96.1bn raised so far in 2021. Solomon had warned earlier this year that the boom was not “sustainable” in the medium term and that the bank would become more selective.
Goldman’s M&A bankers made $1.1bn in the first quarter, up by 43% as appetite for dealmaking has returned in the second half of last year after a pandemic-induced pause. Solomon said that the boom in Spacs would provide a “tailwind” for its M&A business, but that blank cheque companies making acquisitions comprised a “single digit percentage” of activity in the first quarter.
Stephen Scherr, the bank’s chief financial officer, said that the bank had gained market share across its markets and investment banking business this year, particularly in its sales and trading business where there was “very clear consolidation of share among a discrete number of banks in the US.”
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