Compared to the other banks, Goldman’s earnings remain a breeze because despite the recent launch of Goldman’s deposit/loan operation, Marcus, a long time will pass before people start caring about its balance sheet and how much the bank makes through net interest margin. Which means the only thing that matters is the income statement, and here things are relatively simple: the company smashed both the top and bottom line, reporting Q2 revenue of $9.40BN, above the consensus expectations of $$8.74BN, and 19.2% higher compared to Q2 2017 if modestly lower than the bumper Q1. EPS of $5.98 was over a dollar higher than the $4.66 consensus estimate, and far above the $3.95 reported one year ago, with the effective tax rate of just 19.4% certainly helping.
Commenting on the result, outgoing CEO Lloyd Blankfein said:
“Solid performance across all of our major businesses drove the strongest first-half returns in nine years. With a healthy economic backdrop and deep client franchises, the firm is well-positioned to invest in attractive opportunities to meet the needs of our clients and continue to generate earnings growth.â€
Digging into the various revenue segments, the biggest upside surprise came in FICC, which surged 45% Y/Y to $1.68BN, up from $1.16BN a year ago, and modestly better than the $1.65BN expected. Commenting on the result, Goldman said that “FICC Client Execution operated in an environment characterized by higher client activity and improved market-making conditions compared with a challenging second quarter of 2017, although market-making conditions were generally less favorable compared with the first quarter of 2018.”
Goldman’s Investment banking revenue was also a positive surprise, rising 18.2% to $2.045BN from $1.73BN, and above the $1.84BN expected. This was due to a 7$ increase in financial advisory revenues, which were $804MM, “reflecting an increase in industry-wide completed mergers and acquisitions volumes” as well as a 27% jump in underwriting revenue to $1.24BN, “reflecting significantly higher net revenues from initial public offerings. Net revenues in debt underwriting were slightly higher.” Goldman also siad that the firm’s investment banking transaction backlog “was significantly higher compared with the end of the first quarter of 2018.”
