Structured Debt Underwriting Boosts Goldman Sachs’s Revenues

Goldman Sachs (GS) posted revenues of $1.8 billion for Investment Banking segment in 1Q18, up 5% on a YoY (year-over-year) basis and down 16% on a sequential basis. Overall, banks’ (XLF) investment banking segments have seen a sequential decline in fundraising and advisory fees in 1Q18, mainly due to volatile markets and policy changes. However, Goldman outperformed in equity and debt underwriting with YoY growth of 27%, helped by fund raises across structured and traditional debt products, public offerings, and private placements in equities.

JPMorgan Chase (JPM) maintained a number-one position in terms of its share in wallet fees. Citi (C) and Bank of America (BAC) have shown improved performance in this space.

Goldman’s financial advisory fees declined 22% to $586 million in 1Q18, mainly due to fewer completed mergers and acquisition transactions. Underwriting revenues grew 27% to $1.21 billion, mainly due to raising funds from investment grades, leveraged finance, equity underwriting, and asset-backed activity. Morgan Stanley (MS) has seen strong investment banking activity, helped by underwriting activity.

As interest rates rise, debt underwriting activity could slow in the coming quarters. However, higher earnings are expected to keep equities upbeat in 2018. Trade wars and a push for domestic manufacturing could give some support to debt fundraising activity. However, tax cuts could help investments from internal cash accruals.