The second quarter report from Goldman Sachs, which showed earnings of $1.98 per share, was much less than the $3.89 figure analysts polled by Thomson Reuters had expected.
The company says the earnings were reduced by $2.77 per common share as a result of a provision of $1.45 billion set aside for litigation in respect of the probe into the sales of mortgage bonds heading into the 2008 crisis.
In a reversal of the order of contribution to Goldman’s earnings, the investment bank is on track for its best year in history. The excellent banking performance has been driven by an M&A team that has far surpassed its rivals during the deal-making boom experienced during the first half of this year. This was on the back of a poorer performance from the fixed-income trading division.
Highlights extracted from the report include the news that the firm ranked first in worldwide announced and completed mergers and acquisitions as well as in worldwide equity and equity-related offerings and common stock offerings for the year- to- date.
Banking fees for the quarter under review exceeded revenue from its fixed-income division for only the second time since the onset of the financial crisis.
Meanwhile, Chairman and Chief Executive Lloyd Blankfein expressed his disappointment in the performance of the debt-trading unit which has historically been a big profit contributor for Goldman but it did not turn in a good performance for the quarter. Revenue from the unit dropped by 28% to $1.6 billion from $2.22 billion in the previous year. This was a bigger drop than that experienced by competitors J.P. Morgan Chase and Co. or the Bank of America Corp. who had reported earlier.
The poor performance of the debt- trading unit and the spike in legal expenses, together with the provision for further litigation, spoiled what would otherwise have been a strong quarterly report from Goldman.
“We are pleased with our performance for the quarter”, said Lloyd Blankfein. “While uncertainty weighed on investors’ level of conviction, many of our businesses continued to benefit from genuinely improving conditions and healthy client activity.”
Goldman has continued to commit itself to the riskier, capital intensive trading business while some of its peers have preferred to go with steadier sources of income such as wealth management. The Goldman policy has paid dividends as the market activity intensified and increased during the past six months.
Goldman executives point out that as a result of its merger activities, this often leads to additional business ranging from fees to finance the deals to the derivatives trade that assists companies hedge currency or interest rate associated risks.
Goldman shares declined by $1.78 to $211.18 on Thursday.