Goldman Beats On Continued Debt Market Strength

  • Second-quarter EPS of $3.70, beating the consensus estimate of an adjusted $2.89 a share, according to Bloomberg.
  • Excluding items, first-quarter net income was $1.93 billion, exceeding the consensus estimate of $1.48 billion.
  • Net revenue came in at $8.61 billion, surpassing estimate of $7.97 billion.
  • Return on equity (ROE) was 10.5%, dropping from first-quarter ROE of 12.4%.

Updated from 7:57 a.m ET with analyst comments and afternoon share prices.

NEW YORK ( TheStreet) -- Goldman Sachs ( GS) on Tuesday reported better-than-expected earnings after the bank's private equity and debt underwriting businesses performed strongly amid an end-of-quarter surge in interest rates.

Goldman's earnings were buoyed by record debt underwriting revenue and strong year-over-year growth across its trading, investment banking and private equity businesses.

The bank's debt underwriting unit reported record quarterly revenue of $695 million, significantly beating estimates. Those earnings helped to drive flat investment banking revenue from the first quarter of 2013.

The bulk of Goldman's earnings beat is attributable to better than forecast revenue of $1.42 billion from its Investing & Lending unit, driven by rising marks to the bank's private equity investments and its portfolio of securities.

"The beat was primarily driven by investment gains in the Investing & Lending division, a lower than expected tax rate and a slight beat on investent banking fees," Richard Staite, an Atlantic Equities banking analyst, wrote in a note reacting to earnings.

For the quarter, Goldman reported a profit of $1.93 billion, on revenue of $8.61 billion, beating adjusted estimates of $1.48 billion and $7.97 billion, respectively.

Adjusted earnings per share of $3.70 beat an estimate of $2.89 a share, according to analyst forecasts compiled by Bloomberg.

"The firm's performance was solid especially in the context of mixed economic sentiment during the quarter," Lloyd C. Blankfein, Goldman CEO, said in a statement.

After initially trading nearly 2% higher in pre-market trading Goldman Sachs's shares were falling about 1.85% to $159.99, at 1:25 p.m, ET.

Some may be disappointed with Goldman's earnings.

Analysts had expected stronger performance from Goldman's equity underwriting and investment management businesses, as corporations use rising equity markets to sell shares and investors move their money back into stock markets.

Goldman's equity underwriting unit, however, saw revenue decline 5% to $371 million in the second quarter, missing estimates. The bank's GSAM investment management unit, meanwhile, posted flat revenue from year-ago levels at $1.33 billion. Goldman's $1.85 billion in equity trading revenue did beat estimates, according to Bloomberg data.

Goldman's trading earnings also compared favorably to year-ago levels and defied fears of a large sequential drop from first quarter levels..

"They missed the big hit that everybody kind of feared they would have on the spike in interest rates," Marty Mosby, a banking analyst with Guggenheim Securites, said in a telephone interview.

Goldman's fixed income, commodities and currency trading revenue rose 12% to $2.46 billion, slightly below an estimate of 15% year-over-year growth on $2.53 billion in revenue.

The bank's earnings continue to show the importance of trading and private equity activities to its overall revenue. Given new regulatory constraints on risk-taking and leverage, many analysts and investors are hoping for a sustainable pick up in Goldman's customer oriented investment banking and wealth management businesses.

"Generally it was fine. I would have liked to have seen more investment banking revenues," Mosby said.

In second quarter earnings, Citigroup ( C) saw its net income rise 42%, bolstered in part by a strong performance from the bank's debt and equity trading units. JPMorgan ( JPM) similarly reported better-than-expected earnings on a strong recovery in earnings from the bank's securities unit.

JPMorgan's trading revenues were up 18% year-over-year at $5.4 billion, beating the 10-15% guidance issued by management in June.

-- Written by Antoine Gara in New York

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