Goldman's Trading Income Cushions Profit Hit From Ebbing Deals

Goldman Sachs Group Inc on Monday reported a smaller-than-expected 48% slump in second-quarter profit, buffered by the strength in its fixed-income trading as investors realigned their bets amid market volatility.

It shares rose 3.7% as revenue at the global markets unit, which houses Goldman's trading desks, jumped 32% to $6.47 billion, with fixed income, commodities and trading revenue surging 55% and equities revenue adding 11%.

This helped the bank offset a hit to investment banking business due to a plunge in underwriting activity and deals.

Its quarterly report rounds off earnings from big banks and mirrors peers JPMorgan Chase & Co and Morgan Stanley, both of which saw weak revenue from investment banking.

Goldman's revenue from the segment fell 41% to $2.14 billion in the quarter. Revenue from both equity and debt underwriting fell along with those from advising on stock listings and mergers and acquisitions.

Runaway inflation and rising borrowing costs to stamp it out have rattled global financial markets, forcing companies to curb their appetite for deals and go slow in raising cash through stock or debt offerings.

In the second quarter, the global market for initial public offerings saw 305 deals raising $40.6 billion, down 65% from last year, according to data from Ernst & Young's report.

The value of announced deals dropped 25.5% year-on-year to $1 trillion in the quarter with M&A activity in the United States plunging 40%, according to Dealogic data.

"The banks news certainly was very poor for the most part," said Rick Meckler, partner at Cherry Lane Investments.

"It was not unexpected when you consider that investment banking income is really falling off the table and that some of the banks have taken large credit reserves."

Peer JPMorgan Chase & Co's investment banking revenue had slumped 61% to $1.4 billion, mainly due to a 54% drop in fees, while Morgan Stanley had reported a 55% slide in revenue from the segment.

Goldman's net revenue fell 23% to $11.86 billion for the second quarter and profit nearly halved to $2.8 billion, or $7.73 per share.

Asset management was another weak spot for Goldman, with net revenue of $1.08 billion, 79% lower than the second quarter of 2021.

CONSUMER FOCUS

Goldman's Chief Executive David Solomon has been working to reduce the bank's reliance on volatile trading and investment banking by shifting focus to Marcus, its consumer banking unit.

Consumer and wealth management recorded a 25% jump in net revenues to $2.18 billion, driven by higher management fees and credit card balances.

However, if the U.S. Federal Reserve further raises the borrowing cost to a level that restricts consumer spending, the demand for loans could take a hit.

Goldman kept aside $667 million to cover credit losses, compared with a net benefit of $92 million in the same period a year ago.

The U.S. central bank has been trying curb a relentless surge in prices and has committed to a "soft landing". But market participants worry that policymakers will need to engineer a recession to bring inflation under control.

In June, the Fed raised its benchmark federal funds rate by 75 basis points, the biggest hike since 1994, as inflation unexpectedly rose despite expectations it had peaked.

Goldman's net interest income jumped 6% to $1.73 billion.