This already was a fine earnings season for the nation’s biggest banks. Then Goldman Sachs Group Inc (NYSE:GS) joined the hit parade Tuesday with a better-than-expected bottom- and top-line performance. GS stock holders celebrated with a 2%-plus rally at the open.
Even better, just like its peers, GS benefited from a huge recovery in trading revenue, a business that’s been in the dumps for years now.
As welcome as the bounce-back was, it was hardly a surprise after Bank of America Corp (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM) and Citigroup Inc (NYSE:C) all reported resurgent trading revenues this earnings season. Of course, as a pure-play investment bank, improvements in trading revenue are arguably more important to GS than its rivals.
Goldman Sachs Q3 Earnings
For the third quarter, GS said profit came to $2.09 billion, or $4.88 a share. That was a big jump over last year’s earnings of $1.43 billion, or $2.90 a share, the bank reported in the year-ago period. Best of all, GS beat Wall Street estimates by a wide margin. Analysts on average were looking for GS earnings to hit $3.82 a share.
The top line likewise served up a positive surprise. Revenue increased 19% to $8.17 billion from $6.86 billion a year earlier. The Street was looking for revenue of $7.42 billion.
As noted, Goldman Sachs’ results were driven by a comeback in the lucrative trading market for fixed income, currencies and commodities (FICC). On an adjusted basis, FICC trading revenue grew 34% to $1.96 billion.
However, as we saw with other investment banks, equities trading remained quite soft. The stock-trading business eked out a gain of just 2% to $1.78 billion. The drag from equities partially offset the strength in bonds, currencies and commodities. Totally trading revenue increased 17% to $3.75 billion from $3.21 billion in the same quarter a year ago.
Results from a number of investment banking activities were somewhat mixed. Advising on mergers and acquisitions plunged 19% to $658 million. Happily for anyone holding GS stock, the initial public offering business rose 19% to $227 million and revenue from debt-underwriting revenue grew 17% to $652 million.
What Does This Mean for GS Stock?
The latest results show that Goldman Sachs is on the mend after logging its worst first-half results in almost 10 years. That should help shore up sentiment on the name, but it might be hard for any financial stock to gain much traction before the end of the year.
Goldman Sachs stock is up more than 20% since the market’s steep June selloff, but it’s still down 6% for the year-to-date. It’s struggled to break $170 a share while the broader sector — using the SPDR KBW Bank (ETF) (NYSEARCA:KBE) as a proxy — is down almost 2% this year.
Interest rate uncertainty, a slower market for IPOs and softness in M&A could prevent GS stock from mounting a fourth-quarter rally.
That said, the future of this investment looks a lot brighter than it did three months ago.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
