Goldman Sachs profit jumps 40%, blowing past Wall Street estimates, on strong private equity, investment banking results

Goldman Sachs said profit surged 40 percent to $2.57 billion, exceeding analysts’ estimates on better-than-expected revenue from investment banking, asset management and its merchant bank division.

 

Earnings of $5.98 per share beat the $4.66 estimate of analysts surveyed by Thomson Reuters. Company-wide revenue rose 19 percent to $9.40 billion, higher than the $8.74 billion estimate. Three of the New York-based bank’s four main businesses — excluding the trading division — all posted “surprisingly strong” results, thanks to higher private equity gains and fees from equity issuance, according to Atlantic Equities. |

 

The firm’s investing and lending division, sometimes referred to as Goldman’s merchant bank, posted a 23 percent increase in revenue to $1.94 billion, exceeding the estimate by almost $300 million on sales of private equity stakes. Investment banking generated 18 percent more in revenue to $2.05 billion, about $160 million more than expected, mostly driven by strength from initial public offerings. Investment management posted a 20 percent increase in revenue to $1.84 billion, $160 million more than expected.

 

The bank’s shares climbed 0.5 percent in pre-market trading after initially declining. Goldman said that non-compensation expenses surged 24 percent to $2.66 billion from a year earlier after setting aside more money for litigation and regulatory proceedings. That was about $200 million more than analysts had been expecting.

 

Goldman’s traders essentially matched expectations, unlike at rival J.P. Morgan where bond and stock traders posted stronger-than-expected results. Fixed-income trading business generated $1.68 billion in revenue, compared with analysts’ expectations for $1.65 billion. Equity trading produced $1.89 billion, slightly below the $1.91 billion estimate of analysts. The bank also cited trading conditions that were “generally less favorable” compared with the start of the year.

 

Goldman is at a crossroads. After 12 years running the investment bank, Blankfein announced that David Solomon, the bank’s current president, willtake over as CEO on Oct. 1 and add the chairman title at the start of next year.

 

Stung by an industry-wide slowdown in trading and restrictions on risk-taking, Goldman has yet to regain the profitability it had in the wake of the financial crisis. The new CEO will have to focus on the firm’s historic strengths of trading and deal-making, while aggressively expanding a new consumer-facing business.

 

Last month, Goldman was forced to maintain its dividend and share buyback plans unchanged from last year after fumbling a key part of its annual stress test. Its shares are 9.2 percent lower this year before Tuesday, under-performing rivals including J. P. Morgan Chase and Morgan Stanley and the broader indexes.

 

Here’s what Wall Street expected:

 

Earnings: $4.66 per share, an 18 percent increase from a year earlier, according to the average analyst estimate compiled by Thomson Reuters.

Revenue: $8.74 billion, an 11 percent increase, according to the average estimate compiled by Thomson Reuters.

Trading revenue: Fixed income at $1.65 billion, equities at $1.91 billion, according to FactSet.

News Reporter

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