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Business

Goldman Sachs posts blowout profit on surprisingly strong trading

By
Thornton McEnery
Published July 15, 2020
Updated July 15, 2020, 4:35 p.m. ET

Goldman Sachs boss David Solomon can thank the traders he decided not to fire for delivering one of the bank’s best quarters in years.

The Wall Street giant posted second-quarter earnings per share of $2.4 billion, or $6.26 a share, blowing past Wall Street’s expectations of $3.78 a share. The blowout beat was driven in large part by Goldman’s best trading quarter in almost a decade, pulling in revenues of just over $4.2 billion, blowing past the Wall Street estimate of $2.6 billion.

While the bank’s traders benefitted from one of the steepest market upturns in modern history, the irony of Solomon riding his trading desk to victory is not lost on people familiar with the inner-workings of Goldman Sachs.

When Solomon took the reins at Goldman in the fall of 2018, moving over from his gig as investment banking chief, he made no bones about shrinking the size and importance of the bank’s trading operation after it grew under former CEO, and trader, Lloyd Blankfein.

“Our strong financial performance across our client franchises demonstrates the inherent benefits of our diversified business model,” Solomon wrote in a statement accompanying the results. “The turbulence we have seen in recent months only reinforces our commitment to the strategy we outlined earlier this year to investors.”

That strategy is giving Goldman a facelift, shifting the focus away from trading and towards investment banking and its still-fledgling consumer banking business, Marcus, which saw deposits grow by roughly $20 billion in the quarter. That was a record for Marcus, which now holds $92 billion in total deposits.

It wasn’t all sunshine at Goldman. Like JPMorgan Chase, Wells Fargo, and Citigroup on Tuesday, Goldman is also setting aside a whopping amount of cash to guard against what it sees as a very uncertain and stormy end to 2020 thanks to the coronavirus pandemic.

The bank announced it would set aside $1.6 billion in credit loss provisions for the quarter. That number appears small when compared to the $10.5 billion airbag that JPMorgan built last quarter. Still, it’s a huge number — up 650 percent from a year ago — and is smaller only because Goldman is barely exposed to the consumer lending market.

One reason for that excess caution might be that Goldman joined the chorus of its fellow megabanks predicting that the US economy is set for a very difficult few months as fallout from the coronavirus continues, estimating that US GDP will fall by 4.6 percent in 2020.

Goldman is also still reckoning with its role in the 1MDB fraud scandal. Thanks to uncertainty around how much the bank will be fined for the Malaysian misadventure, Solomon and his team are socking away another $945 million in litigation provisions.