Earnings in the second quarter were 2.5 times higher than what Goldman posted a year ago.
By Sridhar Natarajan | Bloomberg
Goldman Sachs is posting a massive 150% jump in second quarter profits Monday, helped by a resurgence of dealmaking and underwriting that has revived investment banking after the slow-down of the previous couple years.
Both fixed-income and equity traders outpaced analysts’ estimates, while a rebounding capital-markets business helped drive better-than-expected results across much of the company’s Wall Street operations.
Still, in a surprise reversal, the company pocketed less in fees from arranging mergers than JPMorgan Chase & Co. Goldman tends to lead the industry in that business and rarely falls behind its rival.
Even as more businesses are on the prowl for deals, the approaching US elections could further delay a return to the pace of growth in the mergers seen in recent years. The business is especially important for Goldman because the firm has tried to showcase its strong investment bank and growing asset-management operation, after abandoning an expansion into consumer banking.
Earnings in the second quarter were 2.5 times higher than what Goldman posted a year ago, when it was plagued by losses in real estate investments and the consumer-banking unit in the middle of an industrywide dealmaking slowdown. Net income was $3.04 billion on $12.7 billion in revenue in the three months through June 30, according to a statement Monday.
Shares of the New York-based firm pared earlier gains after the company said it plans to moderate the pace of buybacks because regulators increased Goldman’s capital-buffer requirement. The stock, which reached an all-time high of $479.88 on Friday, advanced 0.6% at 10:06 a.m. in New York.
“The year-over-year increase in our stress capital buffer does not seem to reflect the strategic evolution of our business and the continuous progress we’ve made to reduce our stress loss intensity, which the Federal Reserve had recognized in our last three tests,” Chief Executive Officer David Solomon said on a conference call with analysts. “Given this discrepancy, we are engaging with our regulators to better understand its determinations.”
Goldman has tried to pare its focus to expanding its investment bank and money-management business to achieve its mid-teens return-on-equity target. It fell short of that mark in the second quarter, notching 10.9%.
The fixed-income trading business posted $3.18 billion in revenue, driven by strength in rates and currencies. The stock-trading unit logged $3.17 billion. Goldman touted its second-best quarter ever across both businesses in financing revenue.
Investment-banking revenue of $1.73 billion fell short of analysts’ average estimate of $1.8 billion. Merger-advisory fees were $688 million. That was less than the $785 million that JPMorgan reported last week.
Goldman’s equity capital markets business generated $423 million in revenue, and debt-underwriting revenue was $622 million.
The asset- and wealth-management business posted revenue of $3.88 billion, up 27% from a year earlier. Management fees climbed 8% as the bank seeks to shift growth to those fees instead of windfalls from balance-sheet investments.
Goldman said last quarter that it raised its biggest war chest yet for private-credit wagers. The firm closed the latest iteration of its direct-lending fund, which along with separately managed accounts for the same strategy amounted to $21 billion. The bank also clinched a $43 billion mandate to invest pension-fund assets of parcel-delivery company UPS, in one of the largest deals of its kind.
That progress has helped the bank stay on track to exceed a target is spelled out earlier this year of raising $50 billion in alternative assets.
In consumer banking, revenue was up 4% and transaction-banking fees dropped 15% from a year earlier. Those businesses are part of the unit that the bank has been disassembling as it reverses its push into retail banking.
The Associated Press contributed to this report.
