Goldman Sachs shares surge after reporting strong 2Q earnings

This Wednesday, Goldman Sachs announced second-quarter earnings that crushed analysts’ expectations and displayed one of their best quarters in years. The investment bank generated $2.42 billion in profit, or $6.26 a share beating analysts’ estimates of $3.96 per share.

In a statement, CEO David Solomon stated “the turbulence we have seen in recent months only reinforces our commitment to the strategy we outlined earlier this year to investors.”

Here, Solomon is likely referring to the strategic plan he laid out in January, where the firm would become less dependent on its trading and investment banking lines and focus more on its consumer business with projects like digital bank Marcus and the Apple Card.

And despite the fact that for the past couple of years, Goldman’s current model (which gains most of its revenue from activities in trading and investment banking) has been a detriment to the bank, it definitely appears to be a clear advantage in the market’s current climate.

Unlike rivals, JPMorgan Chase & Co and Citigroup Inc, the firm’s smaller presence in consumer banking has meant it has set much less aside for credit losses. JPMorgan Chase & Co set aside $10.47bn to cover expected losses from its loan book, while Citigroup Inc set aside $7.91bn.

The Wall Street bank’s securities division, as stated in their earnings presentation has seen 2Q20 net revenues which “were significantly higher YoY, primarily driven by higher client activity.”

Equities trading revenues went up by 46% to $2.94 billion, which is the highest quarterly net revenue in 11 years, while FICC revenues rose by 149% from a year earlier to $4.235 billion, the highest quarterly net revenue in 9 years. The trading division beat analysts’ expectations by approximately $2.5 billion.

On the other side of the “Chinese-wall”, revenues in its investment banking division also shot up, rising by 36% to $2.66 billion.

Major operating expenses for the firm included a $945 million provision for litigation and regulatory proceedings, as well as $1.6 billion dollars that has been set aside in loan loss provisions due to ongoing pandemic.

ROE (Return-on-equity) was 11.1% in the second quarter. According to the bank, it would have been over 15%, if it were not due to pressure from the Fed to boost its capital levels and also because of its legal reserves.

Goldman Sachs Group Inc’s (GS.N) shares jumped as high as 4.1% during early Wednesday trading.