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The Goldman Sachs building is seen in lower Manhattan
Photograph by Spencer Platt / Getty Images
Goldman Sachs Group has just reported an explosive quarter, thanks to an increase in trade and subscription, but Wall Street wonders how long the good times will last.
The investment bank’s shares rose more than 4% before Wednesday’s market opened with better-than-expected second-quarter results, but rose only 0.8% at 11 a.m. EST.
Goldman Sachs (ticker: GS) posted net income of $ 13.3 billion for the quarter ended June 30, beating analyst estimates of $ 9.8 billion and marking the bank’s second-highest quarterly revenue. Earnings per share totaled $ 6.26, again eclipsing Wall Street’s projections of $ 3.78 per share, as well as earnings of $ 5.81 per share for the same quarter of the prior year.
The strong result was largely the result of increased trading activity amid volatility in the second quarter.
“This quarter demonstrated the continued dedication of the people at Goldman Sachs to help our clients navigate a very challenging environment, while working remotely or returning to offices that are quite different from the ones we left earlier in the year,” David Solomon, chief executive of Goldman Sachs, said Wednesday.
Revenue for Goldman’s global markets segment totaled $ 7.2 billion, a 93% jump from the same quarter last year. Fixed income, currency and commodity trading accounted for more than half of that take, standing at $ 4.2 billion, an increase of $ 2.5 billion from the second quarter of 2019 and the bank’s highest performance in that segment in nine years. Stock trading totaled $ 2.9 billion, an 11-year high.
The market volatility resulting from the coronavirus pandemic was behind the surge in business activity, allowing Goldman to shine in an area that has been in decline since the 2008-09 financial crisis. But second-quarter top performance is unlikely to be replicable in future quarters as markets gradually normalize.
“We have not seen the same level of activity over the past 5 to 6 weeks since early June,” Solomon said in a call with analysts. “But I would say that activity levels in the last 5 or 6 weeks, when viewed compared to activity levels in 2019 or 2018, still look quite active.”
Investment banking was another bright spot for Goldman Sachs, bringing in $ 2.7 billion in increased underwriting activity, a jump of 36% year-over-year.
Asset management revenue of $ 2.1 billion fell from $ 2.5 billion year-over-year, due to lower net income from equity investments. The bank’s consumer and wealth management division experienced a 9% increase in revenue, rising to $ 1.4 billion as management fees increased.
Goldman’s provision for credit losses was $ 1.6 billion, compared to $ 937 million in the first quarter, as the bank set aside more funds to cover impaired loans.
The provision was higher than analysts had expected, but well below the provisions made by rival banks with much larger loan books. For reference, when JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) reported the results on Tuesday, they set aside a combined total of $ 28 billion to cover expected credit losses.
Goldmans’ operating expenses totaled $ 8.4 billion during the quarter, marking a 37% increase over last year due to increased compensation expenses and $ 945 million for litigation.
The investment bank’s results on Wednesday come at a difficult time for the industry. While Goldman’s stocks performed better than its peers, thanks to its business combination, the sector was unable to bounce back from the March sell-off as investors worry about low interest rates, bad loans and the weak economic activity.
Goldman struggled in the Federal Reserve’s annual stress test as the bank had a lower-than-expected capital buffer. The Fed wants Goldman to have a Tier 1 (CET1) common equity ratio of 13.7% by October. Goldman was approaching that level at the end of the quarter, with a ratio of 13.6%
Goldman’s results follow mixed results from the other big banks. JPMorgan Chase impressed Wall Street on Tuesday with its trading results, even when it set aside $ 10.5 billion for bad loans. Citigroup also managed to post gains amid a challenging economic environment, but Wells Fargo faltered, reported a higher-than-expected loss and cut its dividend. Bank of America (BAC) and Morgan Stanley (MS) report the results on Thursday.
Write to Carleton English at [email protected]
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