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Investment Banking Drove Goldman Sachs’ Earnings Growth

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4Q15 segmental earnings

In this part of the series, we’ll analyze Goldman Sachs’ segments and their respective performance. Goldman Sachs (GS) operates under the following segments:

  • Investment Banking
  • Institutional Client Services
  • Investing & Lending
  • Investment Management

Goldman Sachs ranked first in worldwide announced and completed mergers and acquisitions for 2015. It also ranked first in worldwide equity and equity-related offerings and common stock offerings. During the year, Goldman Sachs advised on completed transactions worth more than $1 trillion.

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The company’s Investment Banking segment generated revenues of $1.6 billion in 4Q15 and $7.0 billion for 2015 overall—its second-best annual performance. Meanwhile, the investment management segment earned revenues of $6.2 billion for the year. Assets under management grew 6% to $1.25 trillion. Revenues in the company’s financial advisory business rose 27% compared to last year, reaching $879 million due to a significant rise in mergers and acquisitions. For 2015 as a whole, revenues in this business were 40% higher year-over-year at $3.5 billion.

But the institutional client services business suffered. Lower trading revenues hit earnings in the fixed income, currency, and client execution business. Net revenues from this business were 13% lower than last year, at $7.32 billion for 2015. Global weakness and low commodity prices kept investors away from these markets. Equity trading was a savior. Revenues from this business rose 16% to $7.8 billion in 2015, offsetting some losses.

Goldman’s lending and investing business, the firm’s own investments, also took a major hit in 2015. It posted revenues of $5.4 billion—down 20% from a year ago. The company said this decline was due to lower revenues from equities investments, reflecting the sale of Metro International Trade Services.

The company’s investment management segment provides investment and wealth advisory services. This segment generated revenues of $6.2 billion for 2015—3% higher than 2014.

Major US banks’ (XLF) fourth-quarter earnings were severely affected by a slump in trading as global turbulence continues. Earnings from J.P. Morgan (JPM), Bank of America (BAC), Wells Fargo (WFC), and Citigroup (C) slightly beat estimates due to their ability to manage costs.

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