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Goldman Posts Mixed Results For Q2, Makes Official Announcement On Solomon Succession

Blame lower volatility and litigation costs.

Goldman was up to bat with Q2 earnings on Tuesday just as the bank made the CEO transition official:

Generally speaking, the numbers were decent, with profits rising some 40% to $2.57 billion on $9.4 billion in revenue. That top line number represented 19% growth YoY and was the highest Q2 total in nine years.

Notably, IB revenue came in well ahead of estimates at $2.05 billion versus consensus of $1.84 billion, thanks in part to a 7% YoY jump in Financial Advisory fees, a reflection of robust corporate activity during the quarter. This will probably be seen as decent news, considering last quarter, when advisory revenues dove 22% YoY to $586 million.

This comes on the heels of Q1 numbers that benefited from a 38% jump in the bank’s equities business thanks to higher volatility and an increase in client activity compared to Q4 2017.

In Q2, trading revenue came in at $3.57 billion, narrowly missing consensus and down 19% from Q1. FICC revenue was $1.68 billion, a 45% YoY increase with gains seen in all businesses. Goldman did note that the environment for the bank’s trading ops wasn’t as favorable as Q1 (think: less volatility):

During the quarter, FICC Client Execution operated in an environment characterized by higher client activity and improved market-making conditions compared with a challenging second quarter of 2017, although market-making conditions were generally less favorable compared with the first quarter of 2018.

As a reminder, FICC generated $2.1 billion in Q1, the best quarter in three years, so this is something of a drop off.

It wouldn’t be fair to say the equities business “struggled” in Q2, but it certainly wasn’t as robust as Q1. Revenues there were $1.89 billion, flat on a YoY basis. Goldman cited lower volatility and “less favorable market-making conditions compared with the first quarter of 2018.”

Investment and lending revenues were similarly more subdued in Q2 versus Q1, falling 7% QoQ to $1.94 billion (+23% YoY).

GS

Compensation expense was slightly lower than estimates and litigation costs jumped 24% YoY. Here’s Goldman on that:

Net provisions for litigation and regulatory proceedings for the second quarter of 2018 were $148 million compared with $22 million for the second quarter of 2017.

So I guess Solomon will have one more quarter before he has to take the reins. These results are, on balance, mixed although Blankfein made it a point to say this:

Solid performance across all of our major businesses drove the strongest first-half returns in nine years. With a healthy economic backdrop and deep client franchises, the firm is well-positioned to invest in attractive opportunities to meet the needs of our clients and continue to generate earnings growth.

Find the numbers in full below.

Q2 Results

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