Wall Street it seems is back with a vengeance, the latest earnings report shows that America’s most famous investment bank; Goldman Sachs Group (NYSE: GS), is raking in the cash at a furious rate.
The age of Trump may not live to the expectations on Main Street, but Goldman Sachs certainly has a lot to be happy about. The financial numbers dated March 31, 2017, show that Goldman Sachs is making a lot of money:
The Good Times are Back at Goldman Sachs
Here is some data that shows the good times are back at Goldman Sachs:
- Revenues are going up and up. GS’s revenues grew by $2.14 billion during first quarter 2017, rising from $30.61 billion to $32.3 billion. First quarter is the third straight quarter of revenue growth since June 2016, when that number bottomed out at $28.4 billion.
- Goldman Sachs is making more money. Its net income reached $8.518 billion on March 31, 2017, that’s the second highest level ever after the $9.288 billion achieved in March 2015.
- Goldman Sachs is capable of fantastic income growth. Its income nearly doubled in just one year; GS reported a net income of $4.37 billion in March 2016 and $8.518 billion 12 months later. That made for an increase of $4.148 billion in a year.
- Goldman Sachs has an incredible amount of float, it reported a free cash flow of $2.984 billion and assets of $860.16 billion at the end of first quarter 2017.
- Goldman Sachs certainly knows how to make money. During fourth quarter 2016, it generated $13.43 billion in cash from financing, $9.27 billion in cash from investing and $5.57 billion in cash from operations.
- The amount of cash Goldman Sachs made from investing increased by $27.84 billion during 2016. GS reported a negative cash from investing number of $18.57 billion in December 2015; and a positive figure of $9.27 billion in December 2016.
- The amount of money Goldman Sachs has in the bank is incredible, on December 31, 2016, it reported $121.71 billion in cash and short-term investments.
- During 2016, Goldman Sachs’ cash and short-investments increased by $28.27 billion. In December 2015 GS had $93.44 billion in the bank, that figure was $121.77 billion a year later.
What can we learn from Goldman Sachs’ financial numbers?
So what can we learn about Wall Street and the US economy from these numbers. A few takeaways I get include:
- Investment in technology pays off. Over the past few Goldman Sachs has invested heavily in information technology, hiring 9,000 computer engineers according to the MIT Technology Review. It has also invested heavily in Silicon Valley buying into such unicorns as Pinterest, Uber and Dropbox according to Bloomberg Markets.
- Goldman Sachs is gearing up for another big shopping spree in Silicon Valley and elsewhere. My prediction is that Goldman Sachs will make more investments in technology, and put more money into emergent technology markets such as India and China.
- Income inequality is getting a lot worse in America. More wealth than ever is getting concentrated in Wall Street and Silicon Valley and that trend seems to be accelerating. The social, cultural and political fallout from that trend is going to grow and claim a lot more casualties. The Trump victory was only the beginning of the massive political disruption this will cause.
- Traditional investment banking is alive and well and will be with us for a long time to come.
- The $224.86 a share that Goldman Sachs was trading at on May 1, 2017, was justified.
- Goldman Sachs is a good investment and a value investment. Shareholders received a 65¢ dividend on February 28, 2017.
- GS has the ability to pay a far higher dividend if its management feels like it.
How Liz Warren and the Donald Might Boost Goldman Sachs
Goldman Sachs might get a surprise boost from the unlikely political duo of Donald J. Trump and U.S. Senator Elizabeth Warren (D-Massachusetts).
Warren introduced a bill that would reinstitute the Glass-Steagall Act (the 1930s law that barred consumer banks from engaging in investment banking), CNN Money reported. Strangely enough Warren’s legislation quickly found a cheerleader in Gary Cohn; the Donald’s chief economic advisor, and a former Goldman Sachs President.
“If we come up with a 21st Century, modern Glass-Steagall, we may be able to tailor regulation for different aspects of the financial markets and different aspects of the financial institutions and that would allow banks to get lending more aggressively to small- and medium-sized companies,” Cohn told Bloomberg Television.
Resurrecting Glass-Steagall might help Goldman Sachs because it is basically an investment bank. Goldman Sachs’ investments in consumer finance have been limited and aimed at higher income customers. Dumping them would not cost that much and free up resources for more profitable investment activities.
Trump and Warren would Emasculate Goldman Sachs’ Competition
More importantly a new Glass-Steagall would “effectively emasculate” investment banking operations at some of GS’s biggest competitors; including JPM Morgan Chase (NYSE: JPM), Bank of America (NYSE: BAC) and Citigroup (NYSE: C), Motley Fool writer John Maxfield pointed out. That might greatly increase Goldman Sachs’ customer base and increase the amount of investment capital available to it.
Two other Goldman Sachs alumni in the Trump administration; Treasury Secretary Steve Mnuchin and chief strategist Steve Bannon, are also on record as supporting a new Glass-Steagall. This will certainly raise ethical concerns and complaints about conflict of interest.
Yet it shows us that the anti-bank political climate in Washington might be good for Wall Street’s biggest investment bank. A great stock, Goldman Sachs might get better because of the new status quo in the nation’s capitol.
