Goldman Sachs Reverses Wall Street Trend, Sees Profits And Revenues Increase

But the bank’s core trading and sales business still shrank in revenue, fulfilling a warning made by the firm in May.

Brendan Mcdermid / Reuters / Reuters

Goldman Sachs today reversed a trend on Wall Street of profit and revenue declines, posting not only larger than expected earnings in the second quarter, but actual growth compared to last year.

The investment bank, the most profitable of the megabanks, had revenues of $9.13 billion, up 6% from last year and earnings of $4.10 a share, up 11% from $3.70 in the second quarter of 2013. Analysts polled by Bloomberg had been expecting earnings per share of $3.09 and revenues of $8 billion. The bank's total profit was $2 billion.

The surge in profits was largely driven by the bank's advisory units, which rove a wave of new debt issuance across the corporate world thanks to low interest and a hunger for new stock. Revenues from underwriting debt and equity of $1.28 billion, up 20% from last year, with Goldman posting the highest-revenue quarter in debt underwriting in its history.

"We are pleased with our results for the quarter in the context of mixed operating conditions during the period," the bank's chairman and chief executive officer Lloyd Blankfein said in a statement.

Like Citigroup and JPMorgan Chase, Goldman's formidable trading and client sales operation saw a fall-off in revenue, though less than analysts had expected. Revenue from fixed income, commodities, and currency sales and trading was $2.2 billion, a 10% drop. The bank said that its fixed income division "continued to operate in a challenging environment as market volatility and levels of activity generally remained low." This echoed a warning made by its president and chief operating officer Gary Cohn in May that client activity was "abnormal" and that fixed income businesses were weak across Wall Street thanks to global market conditions.

Equities revenue of $1.6 billion fell 13%, roughly in line with markets results from other large banks that have reported earnings for the second quarter. The bank also blamed "generally lower volumes" for the equities decline.

It was a notable admission from Goldman Sachs's number two executive that the firm was subject to the same economic forces as the rest of the banking industry. Prior to the financial crisis, Goldman's fixed income trading and sales business ran laps around its competitors, but in recent years it has started to ebb and flow with them.

The bank's return on equity, a closely watched measure of profitability, remained steady from the beginning of the year at 10.9%. While still tops among its peers, it is about half the figures Goldman regularly churned out before the financial crisis. Although the bank doesn't have a target, it has still been looking to raise its returns.

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