Goldman Sachs Beat Q2 Earnings Expectations

Goldman Sachs stated that their profit 40 percent to $2.57 billion during the second quarter, topping analysts’ estimates on revenue that was better than expected from every major business except trading.  The stock slumped as the company said that legal and regulatory costs swelled.

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The earnings of $5.98 per share exceeded the estimate of $4.66 from analysts.  Revenue jumped up 19 percent, reaching $9.40 billion, a figure higher than the $8.74 billion estimate.  Of the bank’s four main businesses, three New York-based businesses posted “surprisingly strong” results.  The good performance was attributed to the higher private equity gains and fees from equity issuance, according to Atlantic Equities.

Goldman stated that non-compensation expenses increased 24 percent to $2.66 billion from a year ago after the bank set aside more money for litigation and regulatory proceedings.  The figure was nearly $200 million more than what analysts had been expecting.  The bank’s stock slipped 1.2 percent.

Traders of Goldman basically met expectations, in contrast to rival JP Morgan Chase, in which bond and stock traders recorded stronger-than-expected results.  The fixed-income business gained $1.68 billion in revenue, a higher figure when compared with analysts’ expectations of $1.65 billion.  Meanwhile, the bank also cited trading conditions which they described as “generally less favorable” when compared to the beginning of the year.

“In the equities business, the fact is, you were flat year over year in the second quarter, at a time when your peer group that has reported so far were up on average 20 percent,” said Guy Moszkowski, who is an analyst at Autonomous Research, in a conference call.

Goldman’s merchant bank, which is the firm’s investing and lending division, recorded a 23 percent increase in revenue, reaching $1.94 billion on the sales of private equity stakes.  This exceeded estimates by nearly $300 million.

Investment banking gained 18 percent more revenue, jumping to $2.05 billion.  This was around $210 million more than expected.  It was mostly driven by the strength coming from initial public offerings.  Investment management recorded a 20 percent increase in revenue to $1.84 billion, which was $160 million more than expected.

In a note, Brian Kleinhanzl of KBW said that “it was disappointing that much of the revenue beat came from” investing and lending and investment management units.

“We expect shares to be weak relative to peers are investors will not like a beat based on episodic revenues,” he said.

On the evening of the 150th anniversary celebration of the business, Goldman is considered to be “at a crossroads.”  After more than a decade of running the business in the investment bank, Blankfein announced that David Solomon, who is the bank’s current president, will take the help as the CEO starting October 1.  Solomon will also add the chairman title at the start of the next year.

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