World Economy

Goldman Sachs Profit Soars 58%

Goldman generated $2.1 billion in net income  for common shareholders.Goldman generated $2.1 billion in net income  for common shareholders.

Goldman Sachs Group Inc. reported a 58% jump in third-quarter profit on Tuesday as bond trading rebounded and the Wall Street bank managed to keep a lid on expenses.

Goldman reported nearly $2 billion in revenue from trading fixed income, currency and commodities, making it the biggest contributor to overall revenue, Reuters reported.

Strong bond issuance and better conditions in credit and mortgage markets helped the bottom line, Chief Financial Officer Harvey Schwartz said on a conference call with analysts.

But he noted that the business only seems to be doing so well because it performed so poorly in the year-ago period.

“It wasn’t so much about tailwinds as it was about not having so many headwinds in the quarter,” said Schwartz. “It translated nicely for us.”

He noted that while credit and mortgage trading results were better, currencies were flat and rates declined slightly.

Goldman, the fifth largest US bank by assets, has historically been more reliant on bond trading than its peers. That helped the bank earn big profits leading into the 2007-2009 financial crisis, but financial reform rules imposed since then have hindered the business. In an effort to buoy profits, Goldman launched an efficiency program earlier this year, with the goal of reducing annual expenses by $700 million.

That program was evident in its third-quarter results, with operating expenses up just 10%, compared to a 19% rise in net revenue. Staff levels were down 5% compared to the third quarter of 2015.

Goldman shares, which had fallen 6.2% this year through Monday’s close, were up 1.3% in morning trading, to $171.19.

Overall, Goldman generated $2.1 billion in net income for common shareholders, up 58% from the year-earlier period. It was the bank’s second straight rise in quarterly profit after four quarters of decline.

Earnings per share rose to $4.88 from $2.90, partly because Goldman bought back roughly 22 million of its own shares over that time. Analysts on average had expected earnings of $3.82 per share, according to Thomson Reuters.

In a statement, CEO Lloyd Blankfein described it as “solid performance.”

Goldman’s return-on-equity—a closely watched measure of how well a bank uses shareholder money to generate profit—was 11.2% in the quarter. Those returns have been weighed down by higher capital requirements imposed following the 2007-2009 financial crisis. Analysts and investors generally expect big banks to produce returns of at least 10% to meet their basic cost of capital.


Add new comment

Read our comment policy before posting your viewpoints