Goldman’s (GS) Trading Division Saves Earnings

The strength in its fixed-income trading helped Goldman Sachs Group Inc (GS) record a second-quarter earnings decline that was less severe than anticipated (a 48 percent decline) as investors adjusted their bets amid market turmoil.

As result, shares increased by 3.7% as revenue at the segment of the global markets, which includes Goldman’s trading desks, increased by 32% to $6.47 billion. Fixed income, commodities, and trading revenue increased by 55%, and equities revenue increased by 11%.

Due to a decline in underwriting activity and deals, the bank’s investment banking sector took a hit, which was somewhat compensated by this. Its quarterly report totals up major bank results and echoes peers Morgan Stanley and JPMorgan Chase & Co., both of whom saw disappointing investment banking revenue.

Due to a decline in underwriting activity and deals, the bank’s investment banking sector took a hit, which was somewhat compensated by this.

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In the quarter, Goldman’s division sales dropped 41% to $2.14 billion. Along with revenues from providing advice on stock listings and mergers and acquisitions, revenue from both equity and debt underwriting decreased.

Global financial markets have been shaken by runaway inflation and the soaring borrowing costs needed to stop it, causing businesses to reduce their appetite for deals and take their time raising capital through stock or debt issues.

According to data from Ernst & Young’s research, 305 deals in the global market for IPOs raised $40.6 billion in the second quarter, a decrease of 65 percent from the previous year.

According to Dealogic data, the value of announced deals decreased by 25.5 percent year over year to $1 trillion in the quarter, with a 40 percent decline in M&A activity in the US.

Rick Meckler, the partner at Cherry Lane Investments, said: “The bank’s news was clearly quite bad for the most part.”

Considering that investment banking income is significantly declining and certain banks have taken significant credit reserves, it is hardly surprising.

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Peer JPMorgan Chase & Co. reported a 61 percent decline in investment banking income to $1.4 billion, mostly as a result of a 54 percent decline in fees, while Morgan Stanley (MS.N) recorded a 55 percent decline.

For the second quarter, Goldman’s net revenue decreased by 23% to $11.86 billion, while its profit was virtually half to $2.8 billion, or $7.73 per share.

Another area where Goldman struggled was asset management, where net revenue of $1.08 billion was 79 percent lower than in the same period in 2021.

David Solomon, the chief executive of Goldman, has been concentrating on Marcus, the company’s consumer banking division, in an effort to lessen the bank’s reliance on risky trading and investment banking.

Due to greater management fees and credit card debt, consumer and wealth management had a 25% increase in net revenues to $2.18 billion.

The demand for loans, however, might decline if the U.S. Federal Reserve raises borrowing costs further to a point where it curtails consumer spending.

In contrast to a net advantage of $92 million in the same period last year, Goldman set aside $667 million this quarter to cover credit losses.

The U.S. central bank has pledged to a “soft landing” in an effort to slow the unrelenting rise in prices. Market players are concerned that in order to manage inflation, governments may have to orchestrate a recession.

As inflation unexpectedly increased in June despite forecasts that it had peaked, the Federal Reserve increased its benchmark federal funds rate by 75 basis points, the largest increase since 1994.

Net interest income at Goldman increased by 6% to $1.73 billion.

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