Thu | Aug 17, 2017

Goldman earnings jump, helped by lower legal expenses

Published:Wednesday | July 20, 2016 | 7:00 AM
The Goldman Sachs world headquarters in the Lower Manhattan area of New York.

Goldman Sachs' earnings jumped 78 per cent from a year ago as the bank's legal expenses declined and some of its trading desks saw a surge of activity during Britain's vote to leave the European Union.

The bank was not immune to the volatility and uncertainty that plagued its rivals, however, and its advisory business and deal flow slowed.

The investment bank said Tuesday it had a second-quarter profit of US$1.63 billion after dividends to preferred shareholders, or US$3.72 per share, up from US$916 million, or US$1.98 per share, in the same period a year ago.

The results easily topped analysts' expectations, with analysts looking for US$3.09 per share.

"Despite the uncertainty created by Brexit, we achieved solid results by continuing to serve our clients across our diversified franchise and by managing our business efficiently," CEO Lloyd Blankfein said in prepared remarks.

Goldman's results last year were impacted by significant legal expenses as the bank prepared to settle with state and federal regulators over its role in the housing bubble and subsequent financial crisis.

Did well in fixed trading

Echoing the other banks that have reported this quarter, Goldman did mostly well in trading. Goldman's fixed income, currency and commodities division had net revenue of US$1.93 billion, up 20 per cent from a year ago. Stock trading didn't do as well. Revenue there fell 12 per cent to US$1.75 billion due to slower trading, particularly in Asia.

Investment banking revenue fell 11 per cent to US$1.79 billion, reflecting a slowdown in deals. Many companies held off doing deals last quarter due to uncertainty around the British vote. Goldman said its transaction backlog fell in the quarter, which means it sees fewer deals in the pipeline in the coming months.

The difficult quarter meant Goldman did not meet a closely watched metric of profitability: return on shareholder equity, which was 8.7 per cent in the quarter, below the 10 per cent mark most analysts look for.

Goldman set aside US$3.33 billion to pay its employees in the quarter, down 13 per cent from a year ago. Goldman's biggest expense is salaries each year, and it's a metric watched by analysts to see how well Goldman is handling managing expenses.

The investment bank posted revenue of US$7.93 billion in the period, also beating estimates.

Goldman's stock fell US$1.39, or 0.9 per cent, to US$161.94 in midmorning trading. Its shares are down 10 per cent this year so far.

- AP