Sweat equity

16 October 2018 By John Foley Follow @johnsfoley

Goldman Sachs’ new boss steps in at a flattering time. His investment-banking business is solid and returns are beating rival Morgan Stanley. The trading desks need work, but Solomon might also get more from Goldman’s bankers. They’re less productive than they could be.

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Morgan Stanley and Goldman Sachs reported third-quarter earnings on Oct. 16.

Morgan Stanley’s earnings attributable to common shareholders were $2 billion, a fifth higher than the same period last year. Earnings per share of $1.17 compared with $0.93 in the third quarter of 2017 and beat the consensus estimate of sell-side analysts of $1.01 a share according to Refinitiv I/B/E/S.

Revenue of $9.9 billion was 7 percent higher than the same period last year. Morgan Stanley’s annualized return on equity was 11.5 percent for the quarter.

Goldman Sachs’ earnings of $2.4 billion were 21 percent higher than the same period last year. At $6.28 a share, earnings beat the consensus estimate of sell-side analysts of $5.43 a share according to Refinitiv I/B/E/S.

Revenue of $8.6 billion increased 4 percent from last year’s third quarter, in the first results posted since David Solomon took over from Lloyd Blankfein as chief executive. Goldman’s annualized return on equity was 13.1 percent for the quarter.

Fixed-income trading revenue, which includes currencies, bonds and rates, fell 10 percent at Goldman and was up 1 percent at Morgan Stanley. Their equity-trading revenue grew 7 percent and 5 percent respectively.

Underwriting revenue grew strongly at both groups, rising 20 percent year on year at Morgan Stanley and 33 percent at Goldman, and was roughly $1 billion at both.

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