Goldman Sachs Group Inc., which set a Wall Street record for trading revenue in 2009, reported earnings that topped estimates on a smaller drop in fixed-income revenue than many analysts projected.
Second-quarter net income rose 5 percent to $2.04 billion, or $4.10 a share, from $1.93 billion, or $3.70, a year earlier, the New York-based company said today in a statement. That beat the $3.09 average estimate of 25 analysts in a Bloomberg survey.
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Chief Executive Officer Lloyd C. Blankfein, 59, has pledged not to overreact to a trading slump that's now in its fifth year in order to pick up market share as other banks pull back. While his firm's bond-trading revenue fell 10 percent in the second quarter, that was less severe than the 24 percent drop predicted by Wells Fargo & Co.'s Matthew Burnell. JPMorgan Chase & Co. earlier today posted a 15 percent drop in fixed-income trading.
"Some day in the far future we will see the rest of the Street, pieces drop out, shrink, and Goldman will be the long- term winner," Brad Hintz, a Sanford C. Bernstein & Co. analyst, said in a Bloomberg Television interview before the results were announced. Hintz cut his rating on the shares last month to market perform for the first time in five years.
Goldman Sachs climbed 1.3 percent to $167 in New York trading yesterday. The stock has dropped 5.8 percent this year, making it the worst performer in the Dow Jones Industrial Average.
The firm posted its lowest trading profit since the financial crisis last year, less than a quarter of the $19 billion it earned in 2009. The bank earned an 11 percent return on equity in 2013, higher than peers yet just a third of the level before the financial crisis.
Goldman Sachs President Gary Cohn, 53, said in May that the current environment is "abnormal" and features trading clients that are the least active in years. He noted that the 10-year Treasury yield maintained the smallest range in 35 years in the three months ended in May.
"If markets never move or don't move, our clients really don't need to transact," Cohn said.
The firm has cut 10 percent of its fixed-income headcount since 2010 and reduced the risk-weighted assets in that business by $90 billion in the past two years. It has also relied on other businesses for growth.
Goldman Sachs held the top spot among arrangers of global equity, equity-linked and rights offerings in the first half, according to data compiled by Bloomberg. It ranked first in advising on announced mergers and acquisitions and fifth in underwriting U.S. bonds, the data show.
The firm's asset-management business had a record $1.08 trillion in assets under supervision at the end of March, boosted by acquisitions that added more than $50 billion in assets since 2011. The investing and lending segment had more profit than trading last year.
Last month, Goldman Sachs named Stephen Scherr, who previously ran the underwriting business, as the firm's chief strategy officer with a mandate to seek out opportunities for revenue growth even if broader market conditions don't improve in the near term.
The firm has sought to entice investors through buybacks and dividends. Goldman Sachs increased its dividend last year and bought back $6.4 billion of stock in the 12 months ended in March. This year, the bank had to cut its capital-return request to win approval from the Federal Reserve after its initial plan was denied, and hasn't said what the revised request is.
To contact the reporter on this story: Michael J. Moore in New York at mmoore55bloomberg.net To contact the editors responsible for this story: Peter Eichenbaum at peichenbaumbloomberg.net Steve Dickson, Steven Crabill