Gold­man ad­vi­sory divi­sion surges past fixed-in­come traders

Choppy mar­kets cause in­vest­ment banks to un­der­per­form re­tail banks in fourth quar­ter

Business Day (Nigeria) - - NATIONAL NEWS - LAURA NOO­NAN

Gold­man Sachs’ quar­terly re­sults are ex­pected to mark a his­toric mo­ment next week: in­vest­ment bankers in the group’s ad­vi­sory divi­sion are set to make more rev­enue than its un­der-fire fixed in­come traders for the first time in a decade.

The re­sults will of­fer a sil­ver­lin­ing to new boss David Solomon as the for­mer merg­ers and ac­qui­si­tions ad­viser pre­pares to un­veil a tough set of earn­ings and face ques­tions on Gold­man’s han­dling of the scan­dal over Malaysia’s 1MDB fund.

Sev­eral an­a­lysts be­lieve Gold­man’s M&A unit earned higher fourth-quar­ter rev­enues than its fixed-in­come pow­er­house where for­mer chief ex­ec­u­tive Lloyd Blank­fein cut his teeth, thanks to a com­bi­na­tion of an M& A boom and volatile fixed-in­come mar­kets.

If con­firmed by Gold­man in Wed­nes­day’s earn­ings, that would mark the first time that ad­vi­sory rev­enue topped fixed- in­come since 2008, when rev­enues from trad­ing things like bonds and cur­ren­cies turned neg­a­tive, UBS an­a­lysts wrote in a note to clients.

On an un­der­ly­ing ba­sis, fixed­in­come has not un­der­shot ad­vi­sory for more than 20 years, since the 2008 fixed-in­come loss in­cluded a big hit from in­vest­ing ac­tiv­i­ties, which were taken out of the divi­sion in a 2010 re­struc­tur­ing.

Bren­nan Hawken at UBS ex­pects Gold­man’s ad­vi­sory rev­enues to rise 42 per cent yearon-year to $1.1bn, re­flect­ing a “mon­ster quar­ter” where pub­lic data show the vol­ume of closed deals the com­pany ad­vised on more than dou­bled. Mr Hawken ex­pects Gold­man’s fixed in­come, cur­ren­cies and com­modi­ties (FICC) rev­enues to rise 6 per cent year-on-year, to $1.06bn.

An­a­lysts at KBW, JPM Se­cu­ri­ties and Au­tonomous said their models also pre­dicted Gold­man would earn more from ad­vi­sory than FICC in the last quar­ter, while Wells Fargo an­a­lyst Mike Mayo said ad­vi­sory fees “could get close to the point of FICC rev­enues” but would not def­i­nitely beat them.

Mr Solomon be­came chief ex­ec­u­tive on Oc­to­ber 1, end­ing 12 years of Mr Blank­fein’s lead­er­ship. He launched a re­view that fu­elled spec­u­la­tion Gold­man would pivot away from its trad­ing roots, where rev­enues have been in­creas­ingly volatile and cap­i­tal de­mands are high, in favour of the more stable and cap­i­tal-light ad­vi­sory busi­nesses.

The im­pact of Gold­man’s heavy trad­ing fo­cus is ev­i­dent in an­a­lysts’ pre­dic­tions for the fourth quar­ter. Es­ti­mates sub­mit­ted to data ser­vice Fac­tset ex­pect choppy mar­ket con­di­tions to drag Gold­man’s pre-tax prof­its down al­most 13 per cent year-on-year for the quar­ter, the worst rel­a­tive per­for­mance of the big six US banks.

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