Goldman Sachs takes massive hit from difficult markets, volatility in Q1

Goldman Sachs's sales and profits took a massive hit in the first three months of the year as the venerable Wall Street firm was impacted by difficult conditions for market-making at its key trading unit – known by the acronym FICC - and volatility in equities.

Quarterly net income collapsed by 60% in comparison to a year ago, hitting $1.135bn, as revenues shrank 40% to $6.338bn.

Significantly, the bank's earnings took a hit despite having opted to pull back on ‘risk-taking’ during the quarter in comparison to a year ago, as reflected in a decline in its average daily value-at-risk (VaR), although it was still far higher than some of its rivals.

The drop in earnings came despite actions by management to slash operating expenses by 29% to $4.76bn.

A widely-followed ratio of compensation and benefits to net revenues for the first quarter of 2016 was 42.0%, unchanged compared with the first quarter of 2015.

Earnings per share printed at $2.68, in comparison with the $5.94 achieved in the same period of last year and the $1.27 seen in the final three months of 2015.

Analysts had been expecting the New York-based firm to report revenues of $6.73bn and EPS of $2.45.

FICC revenues hardest hit, alongside lower VaR

Net revenues at its Institutional Client Services unit were hardest hit, falling 37% to $3.44bn.

Within that unit, net revenues from Fixed Income, Currency and Commodities client execution did worst, falling 47% to $1.66bn.

“FICC operated in a challenging environment characterized by economic uncertainty and difficult market-making conditions, which resulted in significantly lower net revenues across all major businesses compared with the first quarter of 2015,” the bank said in a statement.

Net revenues from Equities were down by 23% to $1.78bn as a result of the heightened economic uncertainty and volatility.

However, Goldman’s average daily value-at-risk (VaR) – one popular metric for many Wall Street analysts trying to gauge the riskiness of a bank’s earnings – declined rom $81m in the first quarter of 2015 to $72m as of 31 March 2016.

In the last quarter of 2015 Goldman's VaR stood at $71m.

Nonetheless, that was still significantly greater than Morgan Stanley’s first quarter average trading Value-at-Risk (VaR), of $46m, down from $47m one year ago. No equivalent figure was included in JP Morgan Chase's latest results statement.

Re-opening of debt markets benefit IB unit

Investment banking revenues also declined 23.0% to $1.46bn versus a year ago, driven by falling revenues from financial advisory and underwriting, although revenues from debt underwriting improved significantly - primarily reflecting an increase in investment-grade activity - Goldman said.

The firm highlighted how its assets under supervision jumped to a record $1.29trn after net inflows of $26bn for the three month period, including net inflows of $10bn in long-term assets under supervision.

The bank’s return on shareholders’ equity rose to 6.4%.

Common equity Tier 1 capital ratio was at 13.4% as of quarter end, down from the 13.6% achieved in the fourth quarter of 2015.

Goldman’s effective tax rate in the first quarter was 28.0%, below the full-year rate of 30.7% seen in 2015.

To take note of, going into Tuesday's results announcement Goldman Sachs's shares had under-performed the KBW Bank index year-to-date.

As of 13:02 BST shares in in Goldman Sachs were down 0.33% to $158.50.