Goldman Sachs, the multinational US bank, reported second quarter results which smashed analyst estimates as its reliance on trading and investment banking paid dividends. These two divisions made up three-quarters of the firm’s revenue in the period.
The bank had revenue of $13.3 billion, 41% higher than Q2 2019, and was the firm’s second highest quarterly net revenue on record. Three out the bank’s four divisions generated more revenue in Q2 2020 than the same period a year earlier.
The bank saw bond trading revenue come in at $4.24 billion, a 150% bounce, the highest it’s been nine years. Equities trading revenue jumped 46% to $2.94 billion, its best quarter in 11 years. The Investment banking division generated revenue of $2.66 billion, a 36% jump, and a record high. The asset management business fared poorly as revenue fell 18% to $2.1 billion. It was affected by lower profits from private equity, which was marginally offset by increased profits in listed equity. The new consumer and wealth management division was buoyed by management fees and loans from its Apple-Card partnership. Revenue there rose 9% to $1.36 billion.
Goldman Sachs says economic indicators generally improved as the quarter progressed, following significant declines in March and April, as economies began to reopen. Central banks, along with governments, continued to implement monetary easing measures and provided fiscal stimulus to support the economy. This contributed to higher global equity prices and tighter credit spreads compared with Q1 2020.
Goldman Sachs earned a net profit of $2.42 billion, or $6.26 a share, which is an outperformance of nearly 8% on Q2 2019's earnings, and 101% on Q1 2020's earnings. The profit is almost double what analysts were expecting but is unlikely to be repeated, with Chief executive David Solomon indicating that trading activity had decelerated over the past 5-6 weeks.
Provision for credit losses rose to $1.59 billion for Q2 2020, a massive spike albeit expected, compared with only $214 million in provisions for Q2 2019 - and $937 million for Q1 2020. The increase was primarily due to significantly higher provisions related to wholesale loans and, to a lesser extent, consumer loans, reflecting revisions to forecasts of an expected deterioration in the broader economic environment.