NEW YORK, April 15 (Xinhua) -- Two heavyweight U.S. investment banks, Goldman Sachs and Citigroup, reported stronger-than-expected profits amid declining revenues for the first quarter on Monday, following reports of JP Morgan Chase and Wells Fargo on Friday.
As shown in their latest earnings reports, the U.S. banking sector was weighed down by tighter market conditions for trading and investing activities in the realm of equities, as well as growing corporate service operations during the first three months, which has been shaping investor sentiment and market expectations for the current quarter.
LOWER REVENUES AMID VOLATILITY
For Goldman Sachs and Citigroup, waning equities trading was the biggest contributor to their falling revenues, which indicated increasing market volatilities amid broad concerns over global growth and geopolitical tensions such as Brexit and global trade issues, according to their earnings reports released Monday.
Citigroup's first-quarter revenue dropped 2 percent to 18.6 U.S. billion dollars, falling short of market forecasts, due to a marked slowdown in its equity trading business, mark-to-market losses on loan hedges in institutional client groups, and the wind-down of legacy assets.
Citigroup said in its report that a sharp 24-percent slump in equities trading revenue showcased "lower market volumes and client financing balances."
Yet the slump was largely offset by a 20-percent surge in its investment banking revenue.
While in the first quarter, Goldman Sachs saw a plunge of 13 percent year- over-year in total revenue, which reached 8.81 billion dollars and missed analysts' estimates.
The pullback came due to double-digit falls in net revenues of three main business operations, namely, institutional client services, investment banking, as well as investment management.
The bank's net revenues in institutional client services significantly shrank 18 percent amid greater market uncertainty than in the fourth quarter of 2018, said its earnings report.
More specifically in this division, the bank's services in equities, securities, as well as fixed income, currency and commodities (FICC) suffered sliding market volumes and client activities.
Investment management's net revenues also tumbled 12 percent year-over-year, due to remarkably lower incentive fees and lower transaction revenues.
Meanwhile, net revenues in investment banking shrank 11 percent, mostly sunk by weakening equity underwriting, primarily reflecting a significant decline in industry-wide initial public offerings.
Likewise, JPMorgan Chase on Friday also reported a 10-percent decrease in its markets revenue, among which equities revenue dropped 13 percent, while fixed income revenue dipped 8 percent year-over-year.
PROFITS BEAT MARKET ESTIMATES
Yet, investors felt some relief as those leading investment banks reported better-than-expected first-quarter profits, as driven by strong corporate services in the U.S. banking industry.
Citigroup reported net income for the first quarter of 4.7 billion dollars, or 1.87 dollars per share, topping analysts' estimates and higher than the 1.68 dollars per share in the same period last year.
The growth was largely boosted by a reduction in expenses and a lower effective tax rate, partially offset by lower revenues and higher cost of credit, said its report.
Besides, the financial institution performed well in consumer and institutional business and improved their return on capital.
The bank returned over 5 billion dollars to its shareholders during the quarter, contributing to the 11-percent increase in first-quarter earnings per share, according to Citi CEO Michael Corbat.
"When we entered the year, we talked about the need for us to be flexible to meet a range of operating environments, given the way 2018 ended. We have multiple leverages at our disposal, including expenses, balance sheet, and continued credit discipline," said Corbat in a conference call on Monday.
He expressed optimism over the current business environment, which "seems to be normalizing." Although U.S. gross domestic product growth "does appear to be slowing somewhat, we still see good consumer and corporate engagement," he added.
Goldman Sachs also beat market expectations with first-quarter profits, which stood at 2.25 billion dollars, or 5.71 dollars a share, as lifted by an increase in mergers and acquisitions (M&A) volumes.
The firm ranked No. 1 in global completed M&A for the year-to-date, which contributed to strong net revenues in financial advisory of 887 million dollars, said its earnings report.
In addition, the investment bank has stepped up its move to explore innovation-driven growth opportunities by cooperating with Apple to launch its first credit card, as announced last month.
The project would also underpin many other strategic growth initiatives across the firm, said the report.
"We are excited about the opportunity and expect it will prove to be differentiated in the market place and create incremental value for the firm over time," David Solomon, chairman and CEO of Goldman Sachs, said in a conference call on Monday.
He stressed that the joint project represents drivers that "underscore a range of major strategic growth initiatives underway at the firm," including new products that address pain points for corporations, institutions and consumers, new technology, digital delivery mechanisms that produce scale and efficiency, and access to large customer populations.
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