What Drove Goldman Sachs’s Better-than-Expected Q2?

Key takeaways from Goldman’s second quarter

Goldman Sachs (GS) posted better-than-expected second-quarter results on Tuesday. The bank’s revenue and EPS topped Wall Street’s estimates. Goldman Sachs posted revenue of $9.46 billion, beating analysts’ estimate of $8.82 billion. Meanwhile, the bank’s EPS came in at $5.81, well ahead of Wall Street’s estimate of $4.89. Goldman Sachs stock was up about 1.5% in the premarket session.

What Drove Goldman Sachs’s Better-than-Expected Q2?

Gains from investments in public equities and higher net interest income helped Goldman Sachs beat second-quarter estimates. Despite the beat, its revenue and EPS continued to fall. Weakness in its Investment Banking and Institutional Client Services segments remained a drag. However, both its revenue and EPS showed sequential improvement.

Besides Goldman Sachs, Citigroup and JPMorgan Chase also posted better-than-expected second-quarter results. However, investment banking revenues were weak for these banks. Growth in deposits and share repurchases drove the top and bottom lines of both Citigroup and JPMorgan Chase.

We expect Goldman Sachs’s revenue and EPS to continue to fall in the second half. Lower underwriting revenue and weakness in interest-related products are expected to hurt its top and bottom lines.

A closer look at Goldman Sachs’s second quarter

Goldman Sachs’s net revenue of $9.46 billion fell 2% YoY in the second quarter, reflecting weakness in its Investment Banking and Investment Management segments. However, growth in the Investing & Lending segment supported its top line.

Net revenue in the Investment Banking segment fell 9% to $1.86 billion. Financial advisory revenue fell 3%, reflecting a decline in activity. Meanwhile, underwriting revenue fell 12%, reflecting lower net revenue in debt underwriting.

The Institutional Client Services segment’s net revenue fell 3% to $3.48 billion in the second quarter. Its net revenue plunged 13% in fixed income, currency, and commodities. Weakness in the interest rate and credit products combined with currency declines dragged its revenue down. Net revenue in equities rose 6% driven by growth in cash products and derivatives.

Net revenue in the company’s Investing & Lending segment jumped 16% to $2.53 billion. Revenue in its equity securities soared 20% in the quarter, reflecting gains from investments in public equities. Moreover, revenue in debt securities and loans jumped 10% driven by significant growth in net interest income.

The company’s Investment Management revenue fell 14% to $1.59 billion. Management blamed lower incentive fees for the decline. Transaction revenue also fell during the quarter.

Goldman’s provisions for credit losses fell 9%. Meanwhile, the company increased its quarterly dividend from $0.85 to $1.25.