New York: Goldman Sachs Group Inc., the Wall Street firm most reliant on trading, reported a 47% increase in third-quarter profit as its performance in bond trading beat analysts’ estimates.
Net income rose to $2.09 billion, or $4.88 a share, from $1.43 billion, or $2.90, a year earlier, the New York-based company said in a statement Tuesday. That surpassed the $3.88 average estimate of 20 analysts surveyed by Bloomberg.
Chief executive officer Lloyd Blankfein has cut jobs, given responsibility to more junior employees and lowered compensation to prepare the firm for when activity rebounded. This quarter shows the benefit of the strategy, which attracted some skepticism among analysts as competitors such as Morgan Stanley decided to retreat instead.
“We saw solid performance across the franchise that helped counter typical seasonal weakness,” Blankfein, 62, said in the statement.
Goldman Sachs’s stock rose 1.6% to $171.75 in early trading at 8:15 am in New York. The stock had dropped 6.2% this year through Monday, trailing the 3.8% advance for the Dow Jones Industrial Average.
Net revenue in the quarter rose 19% to $8.17 billion. That compares with the $7.41 billion estimate of analysts polled by Bloomberg. Expenses increased 10% to $5.3 billion, higher than analysts’ $4.9 billion estimate, as compensation and benefits jumped 36% from a year earlier. Through the first nine months, the company set aside 41% of revenue to pay its employees, up from 40% in the same period last year.
Fixed-income trading revenue climbed 49% to $1.96 billion excluding year-earlier accounting adjustments, beating the $1.7 billion estimate of five analysts surveyed by Bloomberg. Equities-trading revenue of $1.78 billion surpassed the $1.69 billion estimate. The sales-and-trading division is overseen by Isabelle Ealet, Pablo Salame and Ashok Varadhan.
Revenue from investment banking—run by Richard Gnodde, David Solomon and John Waldron—declined 1.2% to $1.54 billion, beating the $1.47 billion estimate.
Debt-underwriting revenue increased 17% to $652 million, topping the $586 million estimate. Revenue from equity underwriting rose 19% to $227 million, missing the $233 million estimate, and advisory revenue dropped 19% to $658 million, falling short of the $685 million estimate.
Revenue from investment management, run by Tim O’Neill and Eric Lane, climbed 4.4% to $1.49 billion, while the investing and lending division, which houses the firm’s debt and equity stakes, posted revenue that more than doubled to $1.4 billion.
The bank is battling sluggish revenue prospects and trying to show investors it can generate a return on equity above its cost of capital after years of returns often in excess of 20% were the envy of the industry. Return on equity in the third quarter was 11.2% annualized.
Goldman Sachs enacted at least four rounds of job reductions in New York this year that accounted for more than 400 dismissals. It also extended cuts in its fixed-income division to roughly 10% of staff, double what it normally culls each year, and eliminated dozens of managing directors, executive directors and vice presidents across the mergers and debt and equity capital-markets teams.
In recent weeks, Goldman Sachs has reduced its projection for job cuts in Asia. The firm now intends to trim about 15% of its investment-banking jobs in Asia outside Japan, fewer than the 25%, or 75 positions, initially considered last month, a person with knowledge of the matter said Monday.
The company has also sought to develop new businesses to help generate revenue and boost returns. The bank this month began offering loans through its online-lending platform, which offers unsecured consumer loans. It also has an online deposit-taking franchise that it purchased from General Electric Co. this year. Consumers can open a savings account there with as little as $1.