Goldman Sachs's record fixed-income trading revenue last quarter may open even more career opportunities for traders at other top global banks than for Goldman's own traders, in view of new market-share headwinds the SEC's fraud lawsuit could blow in the face of the long-time pacesetter.
While Goldman's fixed-income, currencies and commodities (FICC) business soared, first-quarter investment banking revenue declined from last year's fourth quarter as merger advisory business remained slow. Both comparisons are in line with similar trends reported by other bulge-bracket institutions in recent days. The reports suggest that trading will continue driving bank earnings, notwithstanding chatter among lawmakers and regulators about curbing trading business. That spells career opportunity for fixed-income traders and researchers, and suggests that banks were smart to continue hiring in the segment even while market conditions faltered late in 2009.
Defying predictions of a year-to-year decline, Goldman took in $7.39 billion from FICC dealings in this year's first quarter. That was 13 percent above the 2009 first quarter's $6.56 billion, and 86 percent above the relatively soft fourth-quarter number. Analysts had expected around $6.0 billion.
Will SEC Suit Bite Goldman's Market Share?
Coming after both Bank of America and JPMorgan posted record first-quarter FICC revenue and Citigroup reported solid results for that category as well, the Goldman report confirms a fresh upswing in market conditions for a business segment that's been the biggest driver of Wall Street earnings in recent years.
Although Goldman again enlarged its market-share lead over rival banks, concern now turns to whether institutional fixed-income investors, including publicity-conscious corporations and government-controlled asset pools, will continue favoring the controversial firm or shift some business to other global banks. Bloomberg News reports:
Ralph Cole, a senior vice president in research at Ferguson Wellman Inc., is among investors who said they are concerned the (SEC) case could hurt Goldman Sachs's reputation and cause clients to switch their business to other firms. Another worry is that the case could lead to additional lawsuits against the bank and add impetus to financial-reform efforts that would erode Goldman Sachs's earnings potential.
Investment Banking Mixed
Goldman reported financial advisory (M&A) revenue of $464 million, down 31 percent from the fourth quarter and down 12 percent from the 2009 first quarter. Equity underwriting revenue of $371 million was a large multiple of the year-ago figure, but was down 41 percent compared with the fourth quarter. Debt underwriting came in at $349 million, up 3 percent from the fourth quarter.
On a conference call, CFO David Viniar said there are "small increases in advisory backlog and underwriting backlog," but any upturn in completed deals will reflect global economic recovery. "If the economic world continues to improve we'll start seeing more activity, and if it doesn't, we won't," Viniar said.
The bank set aside $5.49 billion for employee compensation and benefits in the first quarter. That represented 43 percent of revenue, compared with 50 percent in the year-earlier period and 35.8 percent for all of last year.