Goldman Sachs, Continued High Growth Expected Due to Strong IB Division Performance

Q1 Net Profit at 73% of Last Year's Annual Level

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Minji Lee] Goldman Sachs Group is expected to maintain high growth through the second quarter. This is due to the strong performance of the IB division based on abundant liquidity and improved earnings from a decrease in loan loss provisions.

According to the financial investment industry on the 13th, Goldman Sachs' stock price rose about 42% from 265.00 to 378.05 through the 11th of this year. The increase in stock price is attributed to rising expectations for earnings growth and expanded investor sentiment toward financial stocks.

Goldman Sachs Group's net profit in the first quarter was $6.84 billion, exceeding market expectations, representing a 463% increase year-over-year and a 51.7% improvement quarter-over-quarter. This accounts for 73% of last year's annual net profit. Despite a 46.1% year-over-year increase in operating expenses due to higher personnel-related costs, record-breaking earnings were driven by interest income and non-interest income increasing by 12.9% and 102.5% respectively compared to the same period last year. The easing of COVID-19 and economic recovery also contributed to earnings growth with a reversal of approximately $70 million in loan loss provisions.

Operating revenue reached $17.7 billion, a 102.5% improvement year-over-year, supported by a favorable global capital market. Revenue from the core IB (Investment Banking) division grew 72.7% year-over-year, global markets increased 46.8%, asset management turned profitable, and wealth management (WM) and consumer finance grew 16.5%. Specifically, the IB division saw a 43% increase in financial advisory services compared to a year ago due to increased demand for mergers and acquisitions (M&A) and initial public offerings (IPO). The ECM and DCM segments improved by 315% and 50.9%, respectively.

Global markets experienced growth in mortgage products and interest rate-related product sales, along with expanded profits from derivatives and prime brokerage services (PBS), resulting in bond and foreign exchange (FICC) and equity segments growing 31% and 68%, respectively. Hongjae Lee, a researcher at Hana Financial Investment, said, “The asset management division turned profitable due to increased fee income from asset growth and favorable global financial markets, leading to positive returns on investment securities compared to the previous year. WM and consumer finance saw growth in management fees and card loan interest income.”

The high growth trend is expected to continue at least through the second quarter. Researcher Hongjae Lee explained, “The strong performance of the IB division supported by abundant liquidity and a significant decrease in loan loss provisions, which had sharply increased in the first half of last year due to COVID-19, will sustain high earnings growth beyond the first quarter.” He added, “In the second quarter of last year, loan loss provisions reached $1.59 billion, accounting for 12% of operating revenue. Given the economic recovery in the U.S. and other major countries, assuming the elimination of these provisions, the second quarter is also expected to record high growth rates.”

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