Goldman Sachs Bond Trading Revenue Smashes Expectations with Elevated Volatility

Goldman Sachs, America’s largest investment bank reported better than expected second quarter earnings Monday, driven by bullish results in its FICC global markets trading (fixed-income, currencies, and commodities). FICC helped offset a sharp decline in investment banking revenue. The trading goliath followed five of the largest U.S. banks, JPMorgan Chase (JPM), Citigroup (C), PNC, Morgan Stanley (MS) and Wells Fargo (WFC) reporting mixed results last week.

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Goldman Sachs Group Inc NYSE: GS Reported Before Open Monday

$10.76 Beat $8.90 EPS and $12.90 Billion Beat $11.94 Billion Forecast in Revenue


GS Q2 2022 Highlights

  • Goldman Sachs Earnings per share: $7.73 vs. $6.58 expected
  • Goldman Sachs Revenue: $11.86 billion vs. $10.86 billion expected

Second-quarter profit fell 48% to $2.79 billion, or $7.73 a share, driven by industrywide declines in investment banking revenue. However, per share results were more than a dollar higher than the average analyst estimate reported by Refinitiv. Revenue fell 23% to $11.86 billion, which was a full $1 billion more than analysts had expected, driven by a 55% surge in fixed income revenue.

Goldman also tends to benefit from rising asset prices through its various investment vehicles, and so broad declines in financial assets stung the firm in the quarter.

  • The bank’s fixed income operations generated $3.61 billion in revenue, topping the $2.89 billion StreetAccount estimate.
  • Goldman attributed the performance to “significantly higher” trading activity in interest rates, commodities and currencies.
  • Equities revenue rose 11% to $2.86 billion, edging out the $2.68 billion StreetAccount estimate.
  • Investment banking revenue dropped 41% to $2.14 billion, slightly higher than the $2.07 billion estimate
  • The bank said its deals backlog shrank compared with the first quarter, which could indicate that potential mergers and IPOs are being killed instead of being pushed back into future quarters.
  • Asset management revenue fell 79% from a year earlier to $1.08 billion, edging out the $924.4 million estimate. The decline came from losses in publicly traded stocks and smaller gains in private equity holdings, the bank said.
  • Goldman shares were up about 4% in premarket trading.

“We delivered solid results in the second quarter as clients turned to us for our expertise and execution in these challenging markets,” CEO David Solomon said in the release. “Despite increased volatility and uncertainty, I remain confident in our ability to navigate the environment, dynamically manage our resources and drive long-term, accretive returns for shareholders,” he said.

Goldman more than most had been able to profit handsomely from increased trading activity. The major upside for banks is higher short-term rates improving their net interest margins. Banks will benefit from rising rates, provided that they don’t go up too rapidly and hurt demand for mortgages, credit cards and other loans.

Source: Goldman Sachs

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