Goldman's 2Q profit surges on record trading revenue

Goldman Sachs Group made the most of a historic market rebound in the second quarter as the Federal Reserve’s stimulus efforts handed a bonanza to Wall Street trading desks.

Revenue from trading stocks and bonds surged 93%, surpassing what analysts had expected by about $2.5 billion and mirroring similar gains reported Tuesday by JPMorgan Chase and Citigroup. The bank also raked in record fees from helping companies raise cash needed to weather the coronavirus pandemic.

“The turbulence we have seen in recent months only reinforces our commitment to the strategy we outlined earlier this year to investors,” Chairman and CEO David Solomon said in a news release Wednesday.

Bloomberg

The full force of the Fed helped rescue markets reeling from the outbreak and government stay-at-home orders, which had ground economies to a halt around the world. Policy makers’ emergency measures sent companies acing to tap funding sources, and the biggest quarterly stock gains in more than two decades fueled demand for trading services.

The firm’s fixed-income trading revenue more than doubled to $4.24 billion, the highest in nine years, while the equity unit had its best showing in 11 years. The gains propelled revenue to the second-highest mark ever and net income to a slight surprise increase from a year earlier. Profit was $2.42 billion, or $6.26 a share, compared with analysts’ estimates for $3.95 per share.

Goldman Sachs’s large investment portfolio also rode the rebound after taking a massive markdown in the first three months of the year.

Equity and debt holdings swung to a $1.38 billion gain after producing a hit of almost $900 million in the first quarter. Goldman has said it’s moving away from taking stakes with its own money, and is trying to raise more client funds. The strategy could help limit exaggerated moves that add volatility to the firm’s quarterly results.

The firm’s commodities business is on a hot streak after years of scrutiny, generating more than $1 billion in revenue through May, people familiar with the matter said last month. Goldman Sachs didn’t provide an update Wednesday. The company’s oil traders pounced on unprecedented moves in that market, which saw the price of a barrel of oil dropping below zero in April.

Revenue from underwriting stocks and bonds more than doubled to $2.05 billion, well beyond analysts’ average estimate of $1.3 billion. Fees from advising on deals for companies fell 11% to $686 million.

Goldman Sachs posted a big jump in money set aside for litigation and regulatory proceedings, adding almost $1 billion to that pile. Most notably, the bank has yet to resolve charges related to the 1MDB corruption scandal, two years after the Department of Justice implicated three of its bankers in a scheme to loot billions from a Malaysian investment fund.

The Wall Street firm is also facing pressure in the wake of the Federal Reserve’s annual stress tests, in which regulators assigned it a higher “stress capital buffer” that’s used to determine how much capital the company needs to meet safety requirements.

Goldman Sachs almost reached the capital level needed by the end of September, finishing the second quarter just shy of the 13.7% capital-ratio requirement. The firm would need to exceed that mark to keep paying its current dividend, and has previously said it’s confident it can do so.