Better than they expected but not good enough for investors

 
Marc Sidwell
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D Blankfein’s words cast something of a pall over yesterday’s Goldman Sachs first quarter results announcement, in contrast to the numbers themselves. A reference to the potential for macro-economic instability drew focus away from expectation-beating revenues and earnings, and helped shares in the investment bank slightly lower despite the apparent good news.

But it wasn’t really just the downbeat tone: beyond the headline numbers the picture was mixed, showing the bank adjusting to new realities but still counting the cost of losing once reliable revenue streams.

Investment banking revenue was up 36 per cent year-on-year, mainly thanks to new debt and equity underwriting revenues, up 63 per cent year-on-year. But that stands in contrast to institutional client services, a more substantial fraction of Goldman revenues, down 10 per cent year-on-year.

Return on equity for Goldman Sachs was at 12.4 per cent in the quarter, a long way from the returns above 30 per cent achieved before the financial crisis and even the 20 per cent which one analyst mooted late last year. The current price to book ratio is 0.96, suggesting that either Goldman shares are now good value or that even more needs to change.