Goldman Sachs on Oct 15 reported a monster jump in its third quarter earnings, reaping US$3 billion (S$3.9 billion) in profits – far higher than what Wall Street analysts had expected.
How did the investment bank do it? The steadying economic environment helped – but so did a financial manoeuvre employed by Goldman CEO David Solomon a few weeks ago.
In early September, Mr Solomon publicly sounded the alarm, saying many aspects of the bank’s business were stumbling in the third quarter. He warned that the bank’s upcoming earnings might disappoint.
They didn’t – not at Goldman nor the two other major banks that reported results Oct 15.
Up first, a billion-dollar beat
Goldman pulled in nearly US$13 billion in revenue during the third quarter, over US$1 billion more than projections. Its stock was roughly flat.
The bank’s US$3 billion in quarterly profit was roughly equal to what it pulled in during the previous quarter, despite Mr Solomon’s warning in September that profits might not hold up as well as they had in the first half of the year.
A bank executive, briefing reporters on the condition of anonymity, said that trading activity – a core part of any investment bank – came in stronger than expected in September, the same period that the Federal Reserve announced a large cut in interest rates.
It’s been an insipid year for mergers and acquisitions, which Goldman and other investment banks rely on to collect fees for helping to arrange the tie-ups. That said, the Goldman executive reflected a degree of optimism, saying “the world is trending to above average,” economically speaking.
Those mixed feelings were shared by its rival JPMorgan Chase last week, when it reported bumper financial results but flagged a litany of potential problem spots ahead.
A brief interlude about