July 16, 2019 / 11:47 AM / 5 months ago

Goldman Sachs profit beats estimates, boosted by strong equities trading

(Reuters) - Goldman Sachs Group Inc (GS.N) reported a stronger-than-expected quarterly profit on Tuesday as the Wall Street investment bank benefited from increased stock trading.

FILE PHOTO: The ticker symbol and logo for Goldman Sachs is displayed on a screen on the floor at the New York Stock Exchange (NYSE) in New York, U.S., December 18, 2018. REUTERS/Brendan McDermid/File Photo

The bank said equities trading revenue increased by 6 percent from a year ago to $2 billion (£1.6 billion), the second highest in four years. Goldman also said it benefited from higher revenues in client execution including an improved performance in cash products and derivatives.

Shares of the bank were up 1.1% at midday.

However, Goldman’s fixed income business suffered another disappointing quarter with net revenue falling by 13 percent. The bank said that reflected significantly lower net revenue from interest rate products and currencies.

Goldman is shifting the focus of its business model away from trading to a more stable, consumer-oriented revenue stream. Despite the better-than-expected performance, revenue still fell at three of its four major businesses, with the biggest declines in trading and investment management.

Rising geopolitical uncertainties and the impact of future interest rate cuts by the U.S. Federal Reserve present challenges to efforts by Goldman and its rivals to increase revenue.

Institutional client revenue, which includes trading, slipped 3%, while investment banking revenue was down 9%. However, revenue from the bank’s investing and lending business rose 16%, its highest quarterly performance in eight years.

Evercore ISI analyst Glenn Schorr said Goldman had delivered a “pretty good quarter” with most business lines performing “a little better than expected.”

“Looking ahead, we expect management to continue to invest in new initiatives and businesses and return plenty of capital,” Schorr said.

Chief Executive David Solomon, who was promoted to the role in October last year, is undertaking a strategic review of the business and plans to announce the results early next year.

The bank has already made moves to further develop its consumer division, by expanding online bank Marcus and launching a credit card with Apple Inc (AAPL.O). It also announced plans in May to acquire United Capital, a boutique wealth management firm. Solomon said on an analyst call discussing earnings that the United deal would close Tuesday.

Goldman is aiming to generate $5 billion in new revenue by 2020.

While overall revenue slipped in the quarter, lower compensation expenses provided some relief. Total operating expenses were nearly flat at $6.12 billion.

The bank’s net earnings applicable to common shareholders in the second quarter fell 6% to $2.20 billion. Earnings per share fell to $5.81 from $5.98 a year earlier.

Total net revenue fell 2% to $9.46 billion. (bit.ly/2lwdUOM)

Analysts had expected earnings of $4.89 per share and revenue of $8.83 billion, according to IBES estimate from Refinitiv.

JPMorgan Chase & Co (JPM.N) reported a better-than-expected quarterly profit on Tuesday as higher interest income and buoyant consumer lending offset lower activity at its trading desks. Also on Tuesday, Wells Fargo & Co (WFC.N) reported higher quarterly profit despite flat revenue as the bank benefited from lower costs. Top Goldman rival Morgan Stanley (MS.N) is scheduled to report quarterly results on Thursday.

Reporting by Matt Scuffham; Editing by Saumyadeb Chakrabarty and Steve Orlofsky

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