Goldman was up to bat with Q2 earnings on Tuesday just as the bank made the CEO transition official:
Lloyd Blankfein to retire as Chairman and CEO; David Solomon named as successor. View press release: https://t.co/zOxJLgBtlh
— Goldman Sachs (@GoldmanSachs) July 17, 2018
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).
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.
