Goldman Sachs’s trading division to benefit from post-election volatility
Analysts expect Goldman Sachs (GS) to benefit from increased capital market activity following Trump’s presidential victory. Frederick Cannon, Brian Kleinhanzl, and Allyson Boyd, analysts at KBW, wrote in a note last week, “For GS, we believe we are moving to a better trading environment for FICC trading and GS should benefit more than peers given the company’s reliance on trading results and the greater contribution from FICC revenues toward total revenues. In general, we are more confident in rising rates and better trading versus wide-sweeping regulatory changes and we believe BAC and GS offer the best exposure to both at still reasonable valuations.”
Additionally, Deutsche Bank (DB) analyst Matt O’Connor said in an investor note last week, “A stronger economy should benefit many capital market businesses-incl advisory, equity capital markets, and both fixed and equity trading (all areas of strength at GS).”
Goldman Sachs (GS) is more exposed to market volatility than traditional banks (XLF) like Wells Fargo (WFC) and Bank of America (BAC) because it operates as a pure-play investment bank. Thus, it’s more exposed to market swings. Last year, Goldman generated nearly two-thirds of its revenues from its investment banking business and about 16% from investing and lending activities.
In 3Q16, Goldman Sachs’s trading revenues in the fixed income, currency, and commodities unit surged 34% to $2.0 billion. In the equities trading business, revenues were up 2% year-over-year to $1.8 billion. Goldman Sachs gained from higher revenues in credit, currency products, and mortgages. Lower levels of volatility and volumes led to slower growth in equity trading.