A sharp decline in bond trading helped to push Goldman Sachs’s revered trading desk to its second torrid quarter in a row, weighing on an otherwise solid performance by the Wall Street investment bank.
Revenue from fixed income trading, which includes bonds, currencies and commodities, fell by 40 per cent compared with a year earlier, pushing overall trading revenue down by 17 per cent, the sharpest decline from a big US bank so far this earnings season. Goldman suffered its worst quarter ever in commodities trading.
Last year’s Brexit vote triggered a year-long trading boom that brought record profits for America’s big lenders, especially from fixed income products, on which Goldman is more reliant than its peers. However, the boom tailed off in the last quarter as a lack of volatility in the markets frustrated traders.
Although Goldman disappointed on trading, it performed strongly elsewhere, particularly in its investing and lending division, which takes equity stakes in other companies. Compared with a year earlier, companywide profit was flat at $1.63 billion from revenue that fell by 1 per cent to $7.89 billion.
Goldman Sachs shares fell by 1 per cent to $226.93 shortly after the opening bell sounded in New York.
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Lloyd Blankfein, chairman and chief executive of Goldman, said: “A mixed operating environment persisted into the second quarter as conditions continued to support underwriting and mergers and acquisitions, while constraining certain market-making activity.”
In the months leading up to the Brexit vote last year, and for three consecutive quarters after it, clients of Goldman and other big banks had to readjust their portfolios to deal with additional volatility in world markets. This helped the banks to report record trading profits.
In the second quarter this year, Goldman’s revenue from fixed income, commodities and currency trading fell to $1.16 billion from $1.93 billion last year because of “low levels of volatility, low client activity and generally difficult market-making conditions”, the bank said.
In the first quarter of this year, income from fixed-income trading at Goldman was flat at $1.7 billion while at Morgan Stanley it nearly doubled to $1.7 billion. First quarter revenue from fixed-income trading at JP Morgan rose by 17 per cent, while at Citigroup it jumped by 19 per cent and at Bank of America it climbed by 29 per cent to $4 billion.
Goldman’s equities trading desk brought in $687 million in the second quarter, a $100 million baetter than a yera earlier and $135 million more than in the first quarter of 2017. Commissions and fees increased by 3 per cent to $764 million compared with a year ago.
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All in all, Goldman’s trading division, which is the bank’s largest unit, reported second quarter revenue of $3.05 billion, a fall of 17 per cent from $3.68 billion a year ago. In the second quarter of this year, trading revenue fell by 14 per cent at JP Morgan, 9 per cent at Bank of America and 7 per cent at Citigroup.
Goldman’s investing and lending division had an excellent second quarter, with revenue up 42 per cent to $1.58 billion from a year earlier. Income from equity investments soared 88 per cent to $1.18 billion. However, this was pulled down by an 18 per cent fall in revenue from debt and loans, to $396 million.
Goldman’s investment management division reported a 13 per cent improvement in second quarter revenue, to $1.53 billion. Revenue from Goldman’s investment banking division fell by 3 per cent to $1.73 billion.