The bank’s profits more than doubled thanks to improve equities and fixed-income performance
Goldman Sachs (NYSE:GS) stock gained slightly in early morning trading today after the company reported a 150% jump in second-quarter profits.
Profit and revenue for the bank topped estimates, with a net income of $3.04 billion ($8.62 per share), owing to better-than-expected fixed-income results.
“We are pleased with our solid second-quarter results and our overall performance in the first half of the year, reflecting strong year-on-year growth,” CEO David Solomon said in a statement.
The company’s revenue increased due to growth in the bank’s core trading, advisory, and asset and wealth management operations. Specifically, revenue from fixed income increased 17% to $3.18 billion.
Goldman Sachs’ shrinking exposure to consumer loans is another area that boosted its numbers. For the quarter, the investment banks’ provision for credit losses dropped 54% to $282 million, well below the analysts’ estimate of $435.4 million.
Investment banking fees jumped 21% from a year ago to $1.7 billion on the back of increased debt and equity underwriting, while advisory fees were up 7%. It must be noted that Goldman’s investment banking performance was lower when compared to the last quarter, and it was slightly below the consensus estimate as well.
Goldman’s 21% jump in investment banking fees was less than the more than 50% increase for rivals JPMorgan Chase (NYSE:JPM) and Citigroup (NYSE:C). Goldman CFO Denis Coleman told reporters that they hold the biggest shares regarding mergers and that the yearly comparison is more relevant.
What now for the stock?
Goldman Sachs stock fluctuated between gains and losses of less than 1% in premarket trading, as well as in early morning trading. A primary reason why investors may not be overly excited about the 150% jump in Goldman’s net income is the average performance of its investment banking division.
Though investment banking revenue was up yearly, it was down compared to the first quarter. Also, the growth was less than what JPMorgan Chase and Citigroup reported last week.
The investment banking division is more important to Goldman Sachs as it relies more on it than the other six biggest U.S. banks. It will be interesting to see Bank of America and Morgan Stanley’s investment banking performance, which they are due to report on Tuesday.
Despite the lackluster performance of the investment banking division, Goldman Sachs stock does appear to have more room for growth, and there are several reasons for it. The stock is up more than 25% YTD and has outperformed the S&P 500 as well.
Goldman has cleared the 2024 stress test and has increased its quarterly dividend by 9% to $3 a share from $2.75 a share. Over the past five years, the company has increased its dividends four times with annualized growth rate of 24.42%. Its current payout ratio stands at an impressive 43% of earnings.
Goldman’s focus on core operations and opportunistic buyouts are more factors that make the stock well-positioned for future growth. Also, the investment bank is engaged actively in strategic initiatives, and this could potentially boost Goldman’s IB and trading businesses.
In addition to solid fundamentals and strong prospects, stabilizing macro environment also looks promising for Goldman. Improving client activity, growing demand for deal-making globally, better lending scenarios, and lower volatility in the capital markets are more reasons why the stock would continue to provide above-average returns to investors.
