“We delivered solid results in the second quarter as clients turned to us for our expertise and execution in these challenging markets,” a grinning David Solomon said Monday, speaking to the world directly from the bank’s redesigned investor relations page.
Goldman’s Q2 results were — I don’t know — fine. It’s a solid operation.
Dry humor aside, the firm appeared to make the best of a quarter that was indeed “challenging” on several fronts. Thankfully, volatility is a boon for traders. And Goldman has some good ones.
Apropos, FICC was a beat. Revenue of $3.61 billion was up 55% YoY and easily topped estimates. The bank’s equities traders likewise outperformed consensus. Revenue of $2.86 billion was 11% higher than the same period last year.
The FICC breakdown showed gains in rates, commodities and currencies intermediation more than compensated for a drop in mortgages and credit products. Notably, FICC financing revenue rose 82% from a year ago, and 12% sequentially. Equities financing rose 38% YoY. All in all, trading revenue was $6.47 billion, up 32% (figure above). Consensus was $5.82 billion.
IB was weak, as it was across the Street. Net revenue of $2.14 billion represented a -41% YoY decline. Debt underwriting was down 34% from the same period a year ago. Equity underwriting was nonexistent. Both missed estimates. Advisory, however, managed a beat. Revenue of $1.2 billion was up 6% sequentially despite the marked slowdown in industry-wide completed M&A.
Recall that advisory revenue hit a record in Q3 2021, and total IB revenue was perched at all-time highs just two quarters ago (figure above). The bank’s backlog decreased from Q1. Backlogs sat at record levels last summer and remained bloated thereafter, but have receded for several quarters.
In asset management, net revenues dove 79% YoY, even as they nearly doubled from Q1. Across the first half of this year, Goldman reported nearly $1.3 billion in mark-to-market net losses on its public equities book. Net gains from investments in private equities over the first two quarters were around $700 million. The result: A $588 million mark-to-market loss in equity investments in Asset Management.
I’d be remiss not to note that the bank’s fledgling Consumer business received some unfavorable press recently. It’s rolled up with Wealth Management, and Q2 results showed a $394 million provision, which the bank said was the result of its growing credit card business. That brings the YTD provision in Consumer & Wealth Management to $648 million, up 414% from the first half of 2021. Companywide, the provision for credit losses in Q2 was $667 million, compared with a net benefit of $92 million in Q2 2021. In addition to cards, the bank cited “macroeconomic concerns.”
Operating expenses were lower in the second quarter versus a year ago, but higher than the market expected. Compensation and benefits expenses were down “significantly,” where that means 30% YoY. At $3.7 billion, they were still higher than anticipated, though. Non-compensation expenses rose.
Firmwide net revenue of $11.86 billion was down 23% YoY, but beat consensus by more than a billion, while EPS of $7.73 topped estimates by more than a full dollar.
You can make of all that what you will. For his part, Solomon is “confident” in the bank’s ability to “navigate the environment” and “dynamically manage” the firm’s “resources” on the way to driving “long-term, accretive returns for shareholders.” That, at least, I don’t doubt.
