Goldman Sachs sees quarterly profit double

Goldman Sachs quarterly profit doubled, beating Wall Street estimates by a wide margin, as the bank made more from investing its own money and from underwriting.

Goldman’s net income rose to $1.86 billion, or $3.70 per share, in the second quarter from $927 million, or $1.78 per share, in the same quarter last year.

Analysts on average had expected earnings of $2.82 per share.

Revenue in the bank’s fixed income, currency and commodities, or FICC, trading unit, which reflects income from client trading, rose 12 per cent to $2.46 billion.

Goldman’s investing and lending unit, which invests the firm’s own capital, generated revenue of $1.42 billion in the quarter, up from $203 million a year earlier, driven by a tripling of revenue from debt securities and loans. The bank’s net revenue rose 30 per cent to $8.61 billion.

The bond market has been a big breadwinner for Goldman Sachs over the past decade, delivering nearly half of the company’s revenue in the best year.

But Goldman’s trading and investing units are undergoing changes, driven mostly by regulation, that have made it more expensive to be in many of the businesses that once delivered massive profits.

As a result, return-on-equity (ROE) - a closely watched measure that shows how much profit a bank can squeeze from its balance sheet - has been pressured in recent years as it has become more expensive for banks to hold risky assets.

Still, Goldman managed to produce 10.5 per cent ROE in the quarter, above the 8 per cent some analysts were expecting and the 10 per cent benchmark that analysts say is break-even to meet a bank’s cost of capital.

Overall investment banking revenue rose 29 per cent to $1.55 billion, helped by a 45 per cent increase in underwriting revenue. “Improving economic conditions in the U.S. drove client activity...”

Chief executive Lloyd Blankfein said in a statement today, adding that "the operating environment has shown noticeable signs of improvement."

Goldman's results echoed similar trends in the investment banking units of JPMorgan Chase and Citigroup, whose fixed-income trading businesses also benefited from increased client activity early in the quarter.

Reuters