Goldman Sachs reported quarterly earnings Wednesday that crushed Wall Street estimates as the bank’s trading business benefited from market volatility caused by the coronavirus pandemic.
For the second quarter, Goldman generated net earnings of $2.42 billion, or $6.26 a share, compared with analysts’ estimates of $3.78 a share. It was Goldman’s biggest earnings outperformance in nearly a decade.
Revenue rose 41% to $13.3 billion — the second-highest quarterly revenue ever for the firm — as three of its four divisions posted gains, led by bond trading revenue, which posted a surge of almost 150% to $4.24 billion.
“Our strong financial performance across our client franchises demonstrates the inherent benefits of our diversified business model,” CEO David Solomon said in a news release.
Goldman set aside $1.6 billion for credit losses, up from $937 million in the first quarter, to cover soured loans. The provision was higher than analysts expected but well below those of rival banks with much larger loan books.
JPMorgan Chase, Citigroup, and Wells Fargo set aside a combined $28 billion in their last quarters to cover expected loan losses.
As CNBC reports, “Of the six biggest banks, Goldman gets the largest share of its revenue from Wall Street activities including trading and investment banking. For the past few years that has been a detriment to the firm, as retail banking fueled by cheap consumer deposits has driven the industry’s record profits.”
“Now, with retail banks setting aside billions of dollars for loan losses tied to the pandemic, Goldman’s model looks like a distinct advantage,” CNBC added.
The firm’s trading division as a whole produced roughly $2.5 billion more in second-quarter revenue than analysts had expected, with investment banking revenue climbing 36% to $2.66 billion.
“We’ve not seen the same level of [trading] activity over the course of the last five or six weeks since the beginning of June,” Solomon told analysts. “But I would say the activity levels over the last five or six weeks, when looked at compared with activity levels in 2019 or 2018, still look pretty active.