Picture: REUTERS
Picture: REUTERS

NEW YORK — Goldman Sachs Group, the world’s most profitable securities firm before the financial crisis, yesterday said earnings had doubled, beating analysts’ estimates on a jump in trading and investment-banking revenue.

Second-quarter net income rose to $1.93bn, or$3.70 per share, from $962m, or $1.78 per share, a year earlier, the New York-based company said. That beat the $2.89 per share average estimate of 27 analysts.

Fixed-income trading climbed 12% and gains from the firm’s debt investments almost tripled as CEO Lloyd Blankfein led the firm through a drop in bond prices sparked by indications in May that the Federal Reserve may ease economic stimulus measures.

The bank has said it would benefit from a rebound in the US economy and $1.9bn in expense cuts completed last year.

"In a recovering economy, investment banking picks back up and fixed income doesn’t drop off a cliff," Brad Hintz, an analyst at Sanford C Bernstein, said before the results were announced. "With Goldman, you should be at a point where you’re going to get the expansion in investment banking," he said.

Revenue rose 30% to $8.61bn. Compensation, the firm’s biggest expense, increased 27% to $3.7bn and amounted to 43% of revenue for the quarter, down from 44% a year earlier. The ratio was 38% for all of last year.

"While the operating environment has shown noticeable signs of improvement, we continue to put a premium on disciplined risk management, particularly in regard to the firm’s strong capital and liquidity levels," Mr Blankfein said in a statement.

Goldman Sachs shares have gained 28% this year up to Monday after advancing 41% last year. The shares are still below their pre-crisis peak of $247.92 on October 31 2007.

JPMorgan Chase, the biggest US bank by assets, reported earnings on Friday that beat estimates as trading revenue increased 18% and CEO Jamie Dimon said his traders performed well in managing a plunge in emerging-market assets.

Citigroup on Monday reported a 68% jump in equity-trading revenue, topping analysts’ estimates. Bank of America, the second-largest lender, is set to release results today. Morgan Stanley, the sixth-biggest bank, is due to post results tomorrow.

The investing and lending unit, which includes gains and losses on Goldman Sachs’s own investments in stocks, debt, real estate, private equity and hedge funds, as well as loans, posted second-quarter revenue of $1.42bn, up from $203m a year earlier.

Fixed-income, currency and commodity trading revenue was $2.46bn, down 23% from the first quarter. That compared with analysts’ estimates of $2.67bn from Citigroup’s Keith Horowitz and $2.45bn from Richard Staite at Atlantic Equities.

Long-term interest rates rose and risk premiums on debt widened last month after Fed chairman Ben Bernanke indicated the central bank might taper its $85bn in monthly bond purchases, which have boosted demand for higher yielding assets. Mr Blankfein warned in May that some investors might be caught off guard when rates rose.

Goldman Sachs president Gary D Cohn said in May that the notion that banks would have trouble generating fixed-income revenue amid rising rates was an "urban legend", and that the firm tended to be neutral to interest rates in its trading book.

Revenue from the equities division rose 9% from a year earlier to $1.85bn. That compared with Mr Staite’s $1.85bn estimate and a $1.72bn projection by Roger Freeman of Barclays.

Total revenue from sales and trading, led globally by Pablo J Salame and Isabelle Ealet, was $4.31bn. That was below the $4.32bn reported by Citigroup and $5.37bn at JPMorgan. Second-quarter revenue from investment banking, the business run globally by Richard Gnodde, David Solomon and John Weinberg, climbed 29% to $1.55bn.

The figure at Goldman Sachs included $486m of financial-advisory revenue, including fees for takeover advice, an increase of 4%. Revenue from underwriting, a business led by Stephen Scherr, climbed to $1.07bn in the second quarter, including a record $695m from debt underwriting and $371m for equity offerings.

Goldman Sachs held the top spot among arrangers of global equity, equity-linked and rights offerings in the first half, according to Bloomberg data.

It ranked first in advising on announced mergers and acquisitions and fourth in underwriting US bonds.

Bloomberg