Goldman Sachs' Q2 profit soars amid strong trading and underwriting performance

Goldman Sachs reported great profit growth in the second quarter, helped by robust underwriting of debt and fixed-income trading.

Earnings at the Wall Street giant more than doubled from a year earlier but came in well below a record level from the first quarter.

Such results attest to how strongly the US economy is recovering. The job empowered chief executives to make purchases, sell debt, and offer shares.

Excluding one-off charges, CEO comments on performance

CEO David Solomon was happy with the results. He noted "We are pleased with our solid second-quarter results.

Our overall performance in the first half of the year reflects strong year-on-year growth in both Global Banking & Markets and Asset & Wealth Management.

The earnings came out at $3.04 billion, or $8.62 a share, for the quarter ended June 30. In sharp comparison, last year it had earnings of $1.22 billion, or $3.08 a share.

Investment banking and trading fees soar

Goldman Sachs registered a 21 per cent increase in its investment banking fees. The same was $1.73 billion for the quarter.

The fees arising from mergers and acquisitions advisory became 7 per cent more. Its debt and stock underwriting fees soared by 39 per cent and 25 per cent respectively.

The whole FICC trading increased by 17 per cent while the whole FICC financing boosted the FICC financing. Its equities trading revenue also became 7 per cent higher.

Improved profitability in the entire sector

Some of the other major investment banks that showed outstanding results for their investment banking business are JPMorgan Chase and Jefferies Financial.

Based on data compiled by Dealogic, investment banking revenues surged by 17 per cent globally. It increased to $41.6 billion between January and June.

Shift back to core businesses

After its foray into consumer banking didn't pay off, Goldman has hunkered down and focused on the things it historically does best.

Most of that is investment banking and trading, a strategy shift that investors seem to be getting behind.

The firm's stock surged 24.4 per cent this year through Thursday, outpacing Morgan Stanley's 11.6 per cent gain and JPMorgan Chase's 20.5 per cent rise. Goldman shares fell slightly in choppy premarket trading, however.

Growth in asset and wealth management

The asset and wealth management division services to high net worth and institutional clients. It has seen its revenue rise by 27 per cent in Q2.

Goldman oversees $2.93 trillion in its funds. The bank received, earlier in July, the mandate to manage UPS's $43.4 billion retirement client peg.

Platform Solutions hosts a handful of consumer units. It has increased revenues by a low 2 per cent.

Challenges in card sector

Goldman Sachs took a $58 million charge in the second quarter for its credit card business with General Motors.

The company is expected to leave the partnership, as their talks are ongoing for GM to replace Goldman with Barclays.

Negotiations are also said not to achieve a positive solution in the future for Goldman's credit card partnership with Apple.

The Fed's annual stress test pointed to potential problems and noted that Goldman's potential losses are among the worst in a hypothetical scenario.

Dividend increase

Amid the turmoils, Goldman Sachs declared a quarterly dividend hike to $3 a share. That is from $2.75 previously.

The bank's provisions for credit losses have more than halved. They turned out to be $282 million in the second quarter. That is from $615 million a year prior.

(With inputs from Reuters)