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Investment Banking: A Key Revenue Driver for Goldman Sachs

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Investment banking

Over the past few quarters, Goldman Sachs (GS) has witnessed remarkable growth in its Investment Banking segment’s revenues. This growth was primarily driven by the increased M&A (mergers and acquisition) activities, underwriting of public offerings, and placements. The company’s Investment Banking segment’s revenues for the second quarter grew 18.0% on a YoY (year-over-year) basis and 14.0% sequentially.

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Goldman Sachs revealed during its second-quarter earnings call on July 17 that year-to-date, it had been ranked first globally in announced M&A activities, stock offerings, initial public offerings, and equity-related offerings. JPMorgan Chase (JPM) is the largest investment banking company on the basis of revenues.

Goldman Sachs’ close competitors Bank of America (BAC) and Citigroup (C) registered declining investment banking fees during the second quarter. Bank of America’s investment banking fees fell 7.0% YoY to $1.4 billion, and Citigroup reported a similar percentage fall in investment banking revenues to $1.4 billion.

Underwriting revenues

Increases in equity-related offerings, initial public offerings, and placements are driving Goldman Sachs’ underwriting revenues. The company registered YoY growth of 27.0% in its second-quarter underwriting revenues. Goldman Sachs’ underwriting revenues are expected to benefit from private market placements, completed transactions, and public offerings in the quarters ahead.

This growth may be slightly offset by softness in debt underwritings. This softness is due to a declining preference for this asset class among institutional investors amid the Federal Reserve’s hawkish monetary policy.

Bank of America and Citigroup have demonstrated growth in underwriting activities, primarily in manufacturing and technology.

Goldman Sachs, Bank of America, and Citigroup comprise ~16.4% of the Financial Select Sector SPDR ETF (XLF).

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