Market News & Analysis
Citigroup confidence outshines Goldman grind
Ken Odeluga April 16, 2019 4:51 AM
Goldman Sachs’ transition into a bank serving more than Wall Street and the wealthy can’t come soon enough
Its shares traded sharply down for most of Monday’s session. Despite above-forecast earnings, these were still 20% lower, whilst revenues in almost all key businesses fell. The total was down 13% to $18.81bn, more than the 10% fall Wall Street expected. Advisory sales doubled, but their backlog declined, indicating that even that bright spot could fade.
Results quality was an issue. GS bought back 6.3 million shares in Q1, artificially boosting EPS. The biggest profit driver was an 11% expenses fall.
All told, GS is barely getting started on its 2017 plan to boost annual revenue by $5bn. The overhaul will lift retail deposits by at least $10bn and improve GS’s efficiency ratio by a percentage point. But a strategic review won’t be completed till 2020. It’s “the right time period and the right approach for us” said new CEO David Solomon. With shares down 3%, shareholders disagree. Disappointment looks higher after the stock rose 24% in 2019 by Friday.
Only Citigroup shares are doing better among big rivals. The stock had advanced 29.5% by Friday, partly as investors pile into Citi’s belated recovery. The stock also fell the least on Monday after Citi’s quarterly results. The highlight was a net interest margin expansion of 8 basis points. Like GS, Citi also fell back on cost cuts. One key difference though was that Citi’s investment bank revenues grew.
Overall revenues were weaker than forecast at $18.58bn after Citi’s biggest segment, consumer banking, was flat, and equity market sales tumbled 24%. Still, Citi’s CFO, Mark Mason, echoed JPMorgan’s confidence in the year ahead, despite a less favourable rates environment. He spotlighted the U.S. card business, which is key for reigniting growth. Card revenues rose 5% to $2.2bn, “even better than what we were expecting”. It keeps hopes for 3% revenue growth in the current quarter aloft. As such, Citi stock could continue to outperform close rivals.
Even so, the sense that the easiest phase of Big Bank turnarounds is complete is difficult to shake. Further share price progress could be more difficult for all, in coming quarters. Bank of America and Morgan Stanley report earnings on 16th and 17th April respectively.
Normalised chart: large U.S. bank shares – year to date
Source: Refinitiv/City Index
From time to time, GAIN Capital Australia Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.
As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.