In the first three months of the most tumultuous year in recent memory, Goldman’s traders turned in their best performance in five years, effectively rescuing the bank from a stumble in the asset management unit.
Fast forward to the second quarter, and results from JPMorgan and Citi showed trading was among the few bright spots at a time when economic concerns weighed heavily on consumers and prompted America’s largest financial institutions to set aside tens of billions for souring loans.
It thus comes as no surprise that Goldman once again reported blockbuster trading results. FICC revenue was $4.24 billion for the quarter, up 149% YoY. That makes a mockery of estimates. The market was looking for $2.64 billion. Intermediation net revenues surged, reflecting strength across “all major businesses”, and especially in rates, credit and commodities. It was the best quarterly FICC performance in nine years.
In equities, sales and trading revenue was $2.94 billion, the most in more than a decade, and up 46% YoY. That too is better than expected. The market was looking for $2.15 billion. Goldman notes strength in both cash products and derivatives.
All told, Global Markets revenue was $7.2 billion, up a truly laughable 93% versus the same quarter a year ago. Operating expenses were much higher, though. The bank cites compensation and benefits “net provisions for litigation and regulatory proceedings and higher brokerage, clearing, exchange and distribution fees”.
“Our strong financial performance across our client franchises demonstrates the inherent benefits of our diversified business model”, David Solomon said. “While the economic outlook remains uncertain, I am confident that we will continue to be the firm of choice for clients around the world who are looking to reshape their businesses and rebuild a more resilient economy”.
Things improved in asset management (which used to be investing and lending before Goldman revamped how it breaks down results by division). Revenue was $2.1 billion, markedly better than Q1’s debacle, but down 18% YoY. The provision for credit losses was $271 million in the unit, and $350 million YTD.
Lending and debt instruments rebounded strongly thanks to tighter corporate credit spreads, while gains on the bank’s public equities book helped offset smaller gains in private equities (versus Q2 2019). Ultimately, equity and debt holdings in the bank’s investment portfolio (so, red and blue in the figure above), produced a $1.4 billion gain in Q2 versus a ~$900 million loss in Q1.
On the headline numbers, firmwide net revenue was $13.30 billion, up 41% YoY. The street was looking for just $9.71 billion. The range was $7.54 billion to $11.21 billion, which means Goldman easily topped the most optimistic estimate. EPS was $6.26, nearly double consensus ($3.95).
Unsurprisingly given the environment, underwriting was strong. Equity and debt underwriting revenues rose 122% and 93% YoY, respectively. Both posted records, reflecting “a significant increase in industry-wide volumes”. The provision for credit losses was large, and attributable to downgraded economic forecasts and “higher impairments related to relationship and middle-market lending”.
Overall, IB net revenue of $2.7 billion was a record, and breezed past estimates for a $1.84 billion showing.
Finally, revenue in consumer and wealth management – which is home to Marcus and Goldman’s card venture with Apple – grew YoY, but was lower than Q1. Deposits rose a record $20 billion in Q2 after jumping $12 billion in the first quarter, and now total $92 billion. They are busy bees scaling up their online consumer business. That said, YTD provisions rose 144% in the consumer segment, as the economic outlook deteriorated. “The firm continued to support Marcus and Apple Card consumers during the quarter and extended the flexibility to defer payments without incurring any charges for the Apple Card through July 2020”, Goldman remarked.
Summing up, Solomon said the quarter “demonstrated the continued dedication of the people of Goldman Sachs to helping clients navigate a very challenging environment, while working remotely or returning to offices that are quite different than the ones we left earlier in the year”.
Although the “challenges”, the “environment”, and the “offices” may have changed, Goldman’s capacity to print money apparently remains largely intact.