The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.
The investment bank finished the final-quarter of last year on a low note, as it registered a 7.1% decline in net income for the last three months of the year. That said, the finance house still managed to post a 5.4% increase in net earnings over the entire year. The results were relatively good when you consider how difficult the banking environment has been.
Revenue from fixed income, currencies, commodities (FICC) dropped by 29% in the last quarter, and the inactivity in the bond market was the main culprit. The Federal Reserve is tipped to increase interest rates this year, and this will ramp up volatility in the financial markets and, in particular, the debt market.
In the pre-credit crisis days, Goldman used to earn 40% of its income from the FICC division. In recent years the bank has paid the price for being overly dependent on the dealing department. Lessons have been learned from the credit crunch, and tougher regulation has discouraged large trading desks.
On Tuesday, JPMorgan was the first of the major US banks to report its numbers, and the company actually registered a 5% rise in revenue from FICC. In this instance, it was the bond trading department that drove the division back into the black. This could be the beginning of a trend for the US banks this reporting season.
Where Goldman is losing out on the trading teams, the prime brokerage and merger-advisory departments revealed a 15% and 18% increase in revenue respectively. Not all of the more traditional merchant banking divisions are performing as well, investment banking revenue dropped by 16% as debt and stock underwriting fees dropped by 21% and 45% respectively.
When Goldman Sachs report its first-quarter numbers the consensus is for revenue of $9.31 billion and earnings per share (EPS) of $4.25. The fourth-quarter numbers came in slightly above expectations, the revenue was $7.68 billion and the EPS was $4.61, while the market was anticipating $7.63 billion and $4.35 respectively. The bank will announce its full-year numbers in January 2016, and traders are expecting revenue of $34.38 billion and EPS of $17.16. These forecasts represent a fractional increase in revenue and a 1.9% rise in EPS.
Investment banks are bullish on Goldman Sachs, and out of the 32 ratings, ten are buys, 19 are holds, and three are sells. The average target price is $198.87 which is 1.7% above the current price. Equity analysts are even more bullish on JPMorgan, and out of the 40 recommendations, 31 are buys, and the remaining nine are holds. The average target price is $68.70 which is nearly 11% above the current price.
Since Goldman Sachs reported its fourth-quarter numbers in January the number of short positions has increased by 6.1%.
After a minor selloff on the back of the fourth-quarter numbers in January, the share price has been pushing higher, and any further pullbacks will find support in the $194 region, and the target is $200. If the $200 mark is cleared, last year’s high of $202.42 will be the next target. A drop below $194 will bring the 200-hour moving average at $191.55 into play.
Goldman Sachs is available for extended hours trading.