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Goldman Reports Second Best Quarter In History As Advisory Surge Offsets Trading Slump

Goldman Reports Second Best Quarter In History As Advisory Surge Offsets Trading Slump

Big Bank #2 results are out with Goldman reporting Q2 earnings and just like JPM an hour ago, the vampire squire reported solid, if not blowout bottom…

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Goldman Reports Second Best Quarter In History As Advisory Surge Offsets Trading Slump

Big Bank #2 results are out with Goldman reporting Q2 earnings and just like JPM an hour ago, the vampire squire reported solid, if not blowout bottom line earnings, however offset by a modest FICC trading revenue miss.

Here are the Q2 details:

  • Net revenue $15.39 billion, up 16% y/y, and once again not only smashing the median estimate of of $12.43 billion but coming above the highest estimate of $13.54 billion.
  • EPS $15.02, up quite a few orders of magnitude from the 53 cents reported a year ago, once again beating both the median estimate of $10.15 and the highest Wall Street forecast of $12.02.

Like JPM, Goldman also reported blow out Investment banking revenue of $3.45 billion, +26% y/y, estimate $2.92 billion and strong Equities sales & trading revenue $2.58 billion, down 12% y/y, but beating the estimate $2.53 billion. This however, was offset by a 45% drop in FICC sales and trading, which slid to $2.32BN, below the $2.49BN estimate, and led to a miss in overall trading revenue which came in at $4.90 billion, down -32% y/y, and missing estimates of  $5.02 billion.

According to Goldman CEO David Solomon, "Q2 performance and record revenue for the first half of the year demonstrate the strength of client franchise and continued progress on strategic priorities."

Solomon has reason to be happy: As Bloomberg notes, there are a lot of “second-highest” superlatives with these results:  the bank reported the second-highest quarterly net revenues (of $15.38 billion), the second-highest quarterly net earnings and the second-highest quarterly diluted EPS.

Also like JPM, Goldman also made progress on trimming its costs last quarter, with operating expenses down 17% Y/Y to $8.64 billion, and down 8% Q/Q. Goldman attributed the decrease to lower non-compensation expenses, particularly lower provisions for litigation and regulatory proceedings. Technology and transaction-based expenses rose.

However, unlike JPM, Goldman took just a $92 million release (compared to a net provision of $1.59 billion for the second quarter of last year), far lower than JPM's $3 billion. Those reserve reductions were on both the wholesale and consumer loan side. There were some provisions related to portfolio growth, which was primarily in credit-card loans.

Some more details from the quarter:

  • Headcount Essentially Unchanged Compared With 1Q
  • Overall Backlog Increased Significantly vs. Year-End

Digging into the bank's Global Markets division, Goldman reported that Q2 net revenues were $4.90 billion. 32% lower Y/Y and 35% lower than a strong first quarter of 2021.

  • Net revenues in FICC were $2.32 billion, 45% lower than the second quarter of 2020, as  the  prior  year  period  included  strong  activity  levels  due  to  high  volatility  amid  the  COVID-19 pandemic.
    • According to Goldman, "the decrease in net revenues was due to significantly lower net revenues in FICC intermediation, reflecting significantly lower net revenues in interest rate products, credit products and commodities, and lower net revenues in mortgages and currencies."
    • In addition, net revenues in FICC financing were lower, reflecting lower net revenues from repurchase agreements, partially offset by higher net revenues from mortgage lending.

  • Net revenues in Equities were $2.58 billion, 12% lower than the second quarter of 2020, due to significantly lower net revenues in Equities intermediation, reflecting significantly lower  net  revenues  in  cash  products  and  lower  net  revenues  in  derivatives.  Net  revenues in Equities financing were higher, reflecting higher average client balances.

And here is Goldman breaking down the FICC and Equities net revenues:

So overall a mixed sales and trading picture, but it was more than offset by a blowout quarter for Goldman's investment bankers who had an even better quarter than expected, with total Investment banking revenue up 36% to $3.61 billion, smashing estimates of $2.92 billion, and the second highest in history,  just below the SPAC blowout recorded in Q1. The biggest driver was an 83% surge in financial advisory revenue to $1.26 billion (vs exp. of $1.07 billion).

Separately, debt underwriting also came in stronger than expected, with revenue of $950 million, beating analysts’ $817 million estimate. This quarter’s figure is down from a year earlier but up about 8% from the first quarter, a sign debt markets are strengthening as the year progresses. Goldman said the lower revenue this year reflects “significantly lower industry-wide investment-grade volumes, partially offset by elevated industry-wide leveraged finance volumes.”

Here are the details from Goldman:

  • The increase in Financial advisory net revenues reflected an increase in completed mergers and acquisitions transactions.
  • The increase in Underwriting net  revenues was due to higher net revenues in Equity underwriting, primarily driven by strong industry-wide initial public offering activity, partially offset by a significant decline in  industry-wide secondary offerings.
  • Debt underwriting net revenues were slightly lower, primarily reflecting significantly lower industry-wide investment-grade volumes, partially offset by elevated industry-wide leveraged finance volumes.
  • The increase in Corporate lending net revenues primarily  reflected  higher  net  interest  income. 

Perhaps most importantly, the future is bright with Goldman saying that the firm's backlog increased significantly compared with the end of 2020, and was higher compared with the end of the first quarter of 2021. This means even more deals coming in Q3.

Stepping away from Goldman's core trading division, the bank's consumer and wealth management business also had a blowout quarter generating a record net revenue of $1.75 billion in Q2. According to BBG, wealth management was up because of higher assets under supervision and higher loan balances in their private banking and lending operations. Consumer banking was up 41% in net revenues thanks to higher deposit and credit card balances.

Goldman’s equity investments, i.e., prop revenue, surged 302% to $3.717 billion while the incentive fee line jumped 129% to $78 billion, according to Vital Knowledge’s Adam Crisafulli. Despite “blowout headline numbers,” he sees investors taking issue with those lines, “given their volatile and opaque natures (without the huge upside in both those units, the quarter wasn’t as spectacular as the headlines suggest).”

The company provided a breakdown of some of those equity investment: it shows $17 billion of private investments, $4 billion of public. Most are from 2018 through the present, and the bulk are in the Americas, with 26% in Asia and 21% in EMEA.

But the one slide we find most interesting is the one on page 10 which shows that Goldman is officially in distribution mode, selling over $5.5BN in equity investments (mostly to retail clients) while buying just $1.5BN in new positions YTD.

So how are Goldman shares trading after this impressive "second-best ever" quarter in which however FICC could have done better? It appears that the market was expecting just that with GS shares largely unchanged premarket.

Finally, here is Goldman's Q2 earnings presentation (pdf link):

Tyler Durden Tue, 07/13/2021 - 08:10

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate…

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2 hours ago

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March 9, 2024

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Low Iron Levels In Blood Could Trigger Long COVID: Study

Authored by Amie Dahnke via The Epoch Times (emphasis ours),

People with inadequate iron levels in their blood due to a COVID-19 infection could be at greater risk of long COVID.

(Shutterstock)

A new study indicates that problems with iron levels in the bloodstream likely trigger chronic inflammation and other conditions associated with the post-COVID phenomenon. The findings, published on March 1 in Nature Immunology, could offer new ways to treat or prevent the condition.

Long COVID Patients Have Low Iron Levels

Researchers at the University of Cambridge pinpointed low iron as a potential link to long-COVID symptoms thanks to a study they initiated shortly after the start of the pandemic. They recruited people who tested positive for the virus to provide blood samples for analysis over a year, which allowed the researchers to look for post-infection changes in the blood. The researchers looked at 214 samples and found that 45 percent of patients reported symptoms of long COVID that lasted between three and 10 months.

In analyzing the blood samples, the research team noticed that people experiencing long COVID had low iron levels, contributing to anemia and low red blood cell production, just two weeks after they were diagnosed with COVID-19. This was true for patients regardless of age, sex, or the initial severity of their infection.

According to one of the study co-authors, the removal of iron from the bloodstream is a natural process and defense mechanism of the body.

But it can jeopardize a person’s recovery.

“When the body has an infection, it responds by removing iron from the bloodstream. This protects us from potentially lethal bacteria that capture the iron in the bloodstream and grow rapidly. It’s an evolutionary response that redistributes iron in the body, and the blood plasma becomes an iron desert,” University of Oxford professor Hal Drakesmith said in a press release. “However, if this goes on for a long time, there is less iron for red blood cells, so oxygen is transported less efficiently affecting metabolism and energy production, and for white blood cells, which need iron to work properly. The protective mechanism ends up becoming a problem.”

The research team believes that consistently low iron levels could explain why individuals with long COVID continue to experience fatigue and difficulty exercising. As such, the researchers suggested iron supplementation to help regulate and prevent the often debilitating symptoms associated with long COVID.

“It isn’t necessarily the case that individuals don’t have enough iron in their body, it’s just that it’s trapped in the wrong place,” Aimee Hanson, a postdoctoral researcher at the University of Cambridge who worked on the study, said in the press release. “What we need is a way to remobilize the iron and pull it back into the bloodstream, where it becomes more useful to the red blood cells.”

The research team pointed out that iron supplementation isn’t always straightforward. Achieving the right level of iron varies from person to person. Too much iron can cause stomach issues, ranging from constipation, nausea, and abdominal pain to gastritis and gastric lesions.

1 in 5 Still Affected by Long COVID

COVID-19 has affected nearly 40 percent of Americans, with one in five of those still suffering from symptoms of long COVID, according to the U.S. Centers for Disease Control and Prevention (CDC). Long COVID is marked by health issues that continue at least four weeks after an individual was initially diagnosed with COVID-19. Symptoms can last for days, weeks, months, or years and may include fatigue, cough or chest pain, headache, brain fog, depression or anxiety, digestive issues, and joint or muscle pain.

Tyler Durden Sat, 03/09/2024 - 12:50

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February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…

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March 9, 2024

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By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

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Spread & Containment

Another beloved brewery files Chapter 11 bankruptcy

The beer industry has been devastated by covid, changing tastes, and maybe fallout from the Bud Light scandal.

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March 9, 2024

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Before the covid pandemic, craft beer was having a moment. Most cities had multiple breweries and taprooms with some having so many that people put together the brewery version of a pub crawl.

It was a period where beer snobbery ruled the day and it was not uncommon to hear bar patrons discuss the makeup of the beer the beer they were drinking. This boom period always seemed destined for failure, or at least a retraction as many markets seemed to have more craft breweries than they could support.

Related: Fast-food chain closes more stores after Chapter 11 bankruptcy

The pandemic, however, hastened that downfall. Many of these local and regional craft breweries counted on in-person sales to drive their business. 

And while many had local and regional distribution, selling through a third party comes with much lower margins. Direct sales drove their business and the pandemic forced many breweries to shut down their taprooms during the period where social distancing rules were in effect.

During those months the breweries still had rent and employees to pay while little money was coming in. That led to a number of popular beermakers including San Francisco's nationally-known Anchor Brewing as well as many regional favorites including Chicago’s Metropolitan Brewing, New Jersey’s Flying Fish, Denver’s Joyride Brewing, Tampa’s Zydeco Brew Werks, and Cleveland’s Terrestrial Brewing filing bankruptcy.

Some of these brands hope to survive, but others, including Anchor Brewing, fell into Chapter 7 liquidation. Now, another domino has fallen as a popular regional brewery has filed for Chapter 11 bankruptcy protection.

Overall beer sales have fallen.

Image source: Shutterstock

Covid is not the only reason for brewery bankruptcies

While covid deserves some of the blame for brewery failures, it's not the only reason why so many have filed for bankruptcy protection. Overall beer sales have fallen driven by younger people embracing non-alcoholic cocktails, and the rise in popularity of non-beer alcoholic offerings,

Beer sales have fallen to their lowest levels since 1999 and some industry analysts

"Sales declined by more than 5% in the first nine months of the year, dragged down not only by the backlash and boycotts against Anheuser-Busch-owned Bud Light but the changing habits of younger drinkers," according to data from Beer Marketer’s Insights published by the New York Post.

Bud Light parent Anheuser Busch InBev (BUD) faced massive boycotts after it partnered with transgender social media influencer Dylan Mulvaney. It was a very small partnership but it led to a right-wing backlash spurred on by Kid Rock, who posted a video on social media where he chastised the company before shooting up cases of Bud Light with an automatic weapon.

Another brewery files Chapter 11 bankruptcy

Gizmo Brew Works, which does business under the name Roth Brewing Company LLC, filed for Chapter 11 bankruptcy protection on March 8. In its filing, the company checked the box that indicates that its debts are less than $7.5 million and it chooses to proceed under Subchapter V of Chapter 11. 

"Both small business and subchapter V cases are treated differently than a traditional chapter 11 case primarily due to accelerated deadlines and the speed with which the plan is confirmed," USCourts.gov explained. 

Roth Brewing/Gizmo Brew Works shared that it has 50-99 creditors and assets $100,000 and $500,000. The filing noted that the company does expect to have funds available for unsecured creditors. 

The popular brewery operates three taprooms and sells its beer to go at those locations.

"Join us at Gizmo Brew Works Craft Brewery and Taprooms located in Raleigh, Durham, and Chapel Hill, North Carolina. Find us for entertainment, live music, food trucks, beer specials, and most importantly, great-tasting craft beer by Gizmo Brew Works," the company shared on its website.

The company estimates that it has between $1 and $10 million in liabilities (a broad range as the bankruptcy form does not provide a space to be more specific).

Gizmo Brew Works/Roth Brewing did not share a reorganization or funding plan in its bankruptcy filing. An email request for comment sent through the company's contact page was not immediately returned.

 

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