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Tag: Goldman

  • Goldman Sachs’ equities-backed earnings results may pressure

    Booming stock markets around the globe helped Goldman Sachs Group Inc (GS.N) offset declines in other businesses last quarter, but those gains may not be sustainable, analysts said.

    The biggest contributor to the bank’s profits was the $1.5 billion it notched from its own equity investments – including $375 million from electronic trading company Tradeweb – some of which it sold during the second quarter.

    Its investment bankers also handled more stock offerings than any rivals during the period, which in turn helped boost revenue from equity trading, where Goldman is also nabbing market share.

    These were all bright signs in otherwise dreary results for Goldman Sachs, however. Its revenue from other major businesses, including bond trading, M&A and investment management, all fell.

    Analysts warned that without more insight into how Goldman racked up equities gains last quarter and the stock market facing headwinds, they are not giving the results much weight.

    “We consider these to be solid results given the operating environment … but they underscore the importance of the firm’s strategic initiatives,” wrote David Fanger, senior vice president at Moody’s.

    Excluding the gains from Tradeweb, Fanger said the bank is facing “muted client activity levels…investor concerns over trade and tariffs, uncertainty over shifts in central bank policy, and tighter credit markets compared with a year ago.”

    Goldman Sachs is in the middle of a front-to-back business review launched by new Chief Executive David Solomon aimed at adding new businesses like credit cards and cash management to diversify the bank’s revenue streams. Goldman’s IPO investments were the biggest star of the second quarter. The investing & lending division reported net revenues of $2.5 billion, its highest in 8 years.

    The bulk of revenues came from the performance and some sale of investments in Tradeweb Markets Inc, Avantor Inc (AVTR.N), Uber Technologies Inc (UBER.N) and Headhunter Group Plc (HHR.O), which together make up 55 per cent of the bank’s public investment portfolio.

    While competitor banks JPMorgan Chase & Co (JPM.N) and Citigroup (C.N) also reported big gains this week from investments in Tradeweb, Goldman’s gain had a proportionately bigger impact because it is smaller, analysts said.

    Still an adroit trading house, Goldman reported equities trading revenues of $2 billion, or a 6 percent rise from last year, outperforming rival banks that reported equities revenue declined.

    The bank said it benefited from improved client activity and market share.

    Deutsche Bank AG (DB.N) put its share of the market up for grabs earlier this month when it said it would close its equities trading business.

    “The success that Goldman had this quarter (in equities trading) is definitely a more sustainable performance than the large gains in the investing & lending business,” said UBS analyst Brennan Hawken.

    “To the extent that people want to trade they’ll continue to have momentum there with clients.”

  • Goldman, SocGen cut oil price outlook

    Oil dropped to the lowest level in more than 5 1/2 years after Goldman Sachs Group Inc. and Societe Generale SA reduced their price forecasts.

    West Texas Intermediate decreased 4.7 percent to $46.07 a barrel, and Brent 5.3 percent to $47.43. Crude has to “stay lower for longer” if investment in shale is to be curtailed to re-balance the global market, according to Goldman analysts. Societe Generale said falling prices may force the shutdown of expensive crude operations in Canada and the U.S.

    “In a violent move like this it’s impossible to pick the magic number that’s the bottom,” Katherine Spector, a commodities strategist at CIBC World Markets Inc. in New York, said by phone. “I’m not going to pick a bottom. Prices will have to go to a level that inflicts maximum pain before the bottom is found.”

    Oil slumped almost 50 percent last year, the most since the 2008 financial crisis, amid a supply glut estimated by Qatar at 2 million barrels a day. The Organization of Petroleum Exporting Countries is battling a U.S. shale boom by resisting production cuts, signaling it’s prepared to let prices fall to a level that slows American output that’s surged to the highest level in more than three decades.

    A worker waits to connect a drill bit in the Permian basin outside of Midland, Texas.

    WTI for February delivery declined $2.29 to $46.07 a barrel on the New York Mercantile Exchange. It was the lowest settlement since April 20, 2009. Total volume was 34 percent above the 100-day average.

    Brent for February settlement dropped $2.68 to end the session at $47.43 a barrel on the London-based ICE Futures Europe exchange. It’s the lowest close since March 16, 2009. Volume for all futures traded was 57 percent higher than the 100-day average.

    “It’s hard to see what will end the move lower given how bearish sentiment is,” Michael Wittner, head of oil research at Societe Generale in New York, said by phone. “The very weak fundamentals are still being priced in.”

    WTI will trade at $41 a barrel and Brent at $42 in three months, Goldman said in a report distributed today, citing excess U.S. storage capacity and predicting inventories will increase over the first half of this year. It also cut its price estimates for six and 12 months.

    “To keep all capital sidelined and curtail investment in shale until the market has re-balanced, we believe prices need to stay lower for longer,” said Goldman analysts including Jeffrey Currie in New York. “The search for a new equilibrium in oil markets continues.”

    Societe Generale reduced its average WTI price for this year to $51 a barrel from $65, Wittner wrote in a Jan. 9 report. Brent will average $55 a barrel in 2015, down from a previous estimate of $70.

    “The price forecast cuts by both Goldman and Societe Generale reinforce the fears that have driven us down to these levels,” Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut, said by phone. “We’re hunting for a bottom, but it’s anyone’s guess where that will be.”

    The Brent-WTI spread closed at $1.36, the least since July 2013 as the demand outlook for U.S. crude surpassed that for barrels elsewhere. U.S. refineries have operated at over 90 percent of capacity for the last two months, according to the Energy Information Administration.

    “The strongest pocket of demand is here, with refineries operating at near 94 percent of capacity,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “The Mexican request for U.S. exports is also reducing the spread. This is a signal that more light, sweet barrels should be going that way.”

    The 40-year-old ban on most U.S. crude exports is set to be loosened after Mexico’s state-owned oil company asked for an exception. Petroleos Mexicanos said last week that it’s in talks with the U.S. Commerce Department to import 100,000 barrels a day of light crude to increase Mexico’s gasoline production and improve refining.

    Rigs seeking oil in the U.S. fell by 61 to 1,421, Baker Hughes Inc. said Jan. 9, extending the five-week decline to 154. It was the largest drop since February 1991, which also followed a slide in prices before the start of the Persian Gulf War.

    “This is a major change but we probably won’t see lower output this year,” Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania, said by phone. “We won’t see the ramifications of this and the lessening of the glut until 2016.”

    OPEC decided to maintain its collective output target at 30 million barrels a day at a meeting on Nov. 27. It’s competing for market share amid surging output in the U.S., where production expanded to 9.14 million a day through Dec. 12, Energy Information Administration data show. That was the most in weekly records that started in January 1983.

    Oil won’t return to $100 a barrel again, Saudi billionaire businessman Prince Alwaleed bin Talal said, according to USA Today.

  • HSBC, Goldman sued for allegedly fixing metal price

    Goldman Sachs and HSBC are among four platinum and palladium dealers to be sued in New York for allegedly fixing the price of the metals.

    The four companies are said to have rigged prices for eight years. BASF and Standard bank were also sued in the first lawsuit of its kind in the U.S.

    The four defendants declined to comment.

    Modern Settings, a Florida-based maker of jewellery and police badges, said purchasers lost millions of dollars.

    The Florida company filed the complaint in Manhattan federal court.

    Platinum and palladium are used in jewellery, cars and dentistry.

    The companies were accused of having conspired since 2007 to rig the twice-daily platinum and palladium fixings.

    It is alleged that the companies illegally shared customer data and then used that information to engage in front running.

    Front running is a form of market manipulation in which traders profit by using information about their clients’ trading intentions.

    Traders will often know how a particular client order will affect the market and can place their own trades ahead of that order to benefit.

    The four companies in this case are also accused of manufacturing “spoof” orders.

    Last month , the London Metal Exchange said it will take charge of platinum and palladium price fixing, and use a new electronic platform from the December 1.

    However, the lawsuit said those changes “have come too late”.

    Goldman, HSBC and Standard Bank declined to comment.

    A spokeswoman for BASF, the world’s largest chemicals maker, said the group could not comment because it had not been notified of the complaint.

    International regulators have tightened scrutiny of pricing benchmarks in recent years.

    The tighter regulation comes after a currency trading scandal and the Libor scandal, which fixed a benchmark interest rate.

  • Goldman 10% return tied to CEO pay too low for investors

    Goldman Sachs Group Inc. (GS) investors want a target for yearly returns — as long as it’s higher than the one that pays a bonus to Chief Executive Officer Lloyd C. Blankfein and his top deputies.

    With the New York-based firm set to report a fourth straight year of lower profitability than it had in the decade before the financial crisis, shareholders are waiting for Goldman Sachs to end its status as the only major investment bank that won’t declare a public profitability target. The company’s board of directors set a 10 per cent return-on-equity target for top executives to earn their long-term bonuses, a level that even Blankfein has called “hardly aspirational.”

    While the lack of a target hasn’t prevented Goldman Sachs’s stock from almost doubling in the past two years, executives have been asked for a goal by analysts and investors during six of the last seven earnings calls and conference presentations. The most recent request came after third-quarter trading revenue dropped the most among the nine largest global investment banks.

    “It does come up a lot with investors, how long do they have?” said Roger Freeman, a Barclays Plc (BARC) analyst in New York. “It’s a question of time — whether the environment for dealers gets better fast enough to avoid being in a difficult position of having to put a target out there that’s meaningfully higher than where they’re at.”

    After posting a return on equity of more than 30 per cent before the financial crisis, Goldman Sachs has struggled to reach 10 per cent in the past three years. Still, investors want the firm to aim higher than that, said Keith Davis, an analyst at Farr, Miller & Washington LLC in Washington, which manages more than $1 billion, including shares of Goldman Sachs.

    “I don’t think that is a target that management would want to put forth for investors,” Davis said. “It would almost certainly be received negatively.”

    From its initial public offering in 1999 through 2007, Goldman Sachs had a public long-term goal of a 20 percent return on tangible equity, a subset of equity that excludes assets such as goodwill. That was equivalent to a return on equity in 2007 of about 17 per cent. The bank met or topped that target in seven of the nine years. Profitability peaked in 2006, when return on tangible equity was 40 percent and return on equity 33 per cent.