Goldman Sachs (NYSE: GS) earnings came in today (Thursday) at $4.60 per share, beating consensus estimates of $4.21. Revenue for the investment bank was nearly $8.8 billion - well above analysts' projections of $7.7 billion.
Don't be fooled by the estimate-beating numbers.
Today's report suggests that Goldman Sachs rebounded from its abysmal third quarter, but GS's earnings beat is mostly an indication of how modest analysts' projections were.
Goldman's net income of $2.3 billion was less than the $2.89 billion reported in the same quarter last year. Likewise, $8.8 billion in revenue was 5% lower than 2012's Q4 - even if it did beat expectations.
The biggest takeaway from today's earning's report was Goldman's fixed-income, currencies, and commodities (FICC) trading business. GS's FICC trading revenue was just $8.7 billion for all of 2013. That represented a 13% drop from 2012.
That was also Goldman Sachs' worst FICC revenue since the financial crisis.
Goldman officials are quick to point out that Q4 FICC trading revenue of $1.7 billion was a 38% gain from Q3. That, however, points more to the terrible Q3 Goldman had.
Yes, Goldman's FICC rebounded in Q4, but that $1.7 billion revenue was still a 15% drop from the previous year.
Equities revenue at Goldman Sachs was also reported near $1.7 billion for Q4. That's a 4.1% increase from Q3 - but a 27% drop from 2012's Q4.
One of the only numbers to help offset Goldman's losses: Investment banking revenue rose 22% from last year, at over $1.7 billion.
Standard Life Investments' Euan Sanderson wrote the results were "respectable but unspectacular." According to Sanderson (published in Barron's):
"Full year Return on Equity was 11% which represents a fairly solid showing in a somewhat challenging environment but also serves as a reminder that the glory days of posting 20%+ ROE is a distant memory as higher capital levels and regulatory constraints make it more challenging for 'Goldman to be Goldman'!"
Earnings Impact on Goldman Sachs (NYSE: GS) Stock
Goldman's FICC trading revenue is especially concerning when compared to that of its competitors.
When Bank of America Corp. (NYSE: BAC) reported earnings on Wednesday, its FICC revenue had jumped 22% from last year. Another investment banking titan, JPMorgan Chase & Co. (NYSE: JPM), reported FICC revenue this week of $3.2 billion, which was almost exactly the same as in 2012.
Analysts had been worried about the impact new regulations like the Volcker Rule would have on investment banks like Goldman Sachs. These regulations were designed to limit the amount and type of speculative investments big banks make.
These regulations seem to be having an impact - as evidenced by the quarter's ROE of only 13%, which as Sanderson pointed out is low compared to pre-crisis levels of +20%.
For investors, it's tough to have confidence in GS stock in the short term as FICC figures continue to disappoint. GS stock was down 2.2% at 1:15 Thursday to $174.81. GS is down just over 1.4% year to date.
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