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Profits at Goldman Sachs rose more than a fifth in the second quarter, as a surprise rally in investment banking added to a record period for the US bank’s equity traders.
The Wall Street group comfortably beat estimates with net income of $3.7bn for the three months to the end of June, up from $3bn a year ago.
Equities traders at the bank have enjoyed two record quarters in a row, aided by big market moves around Donald Trump’s policy announcements — including his “liberation day” tariffs at the start of April.
Their fixed income trading colleagues also reported better than expected revenues, and together the two trading divisions generated $7.8bn in revenues.
But it was the increase in investment banking where the gains for Goldman and its rival JPMorgan Chase were particularly striking.
Investment banking has been suffering a prolonged slump, as higher interest rates have discouraged private equity firms from selling portfolio companies at depressed valuations and volatility in the equity markets has made it difficult to launch initial public offerings.
On Wednesday however, Goldman reported an increase in investment banking fees of 26 per cent, with the $2.2bn it booked about $400mn better than analysts had expected.
The outperformance in trading and investment banking was echoed across Wall Street’s big banks, though Goldman had by far the biggest year-on-year fee gains.
Bank executives were quick to talk up the economic environment as one that could be conducive to the sort of dealmaking activity they had hoped for at the start of the year but had previously been quashed by political and market uncertainty.
“A narrowed range of outcomes on trade and the overall economy has helped CEO confidence and increased their willingness to transact,” said Goldman chief executive David Solomon.
Morgan Stanley chief executive Ted Pick said “boardrooms appear more accepting of ongoing uncertainty broadly” in their willingness to do deals.
Wall Street executives need the momentum to prove less fleeting than other recent recoveries, however.
In recent years bank executives have talked about “green shoots”, “early innings” and “animal spirits” being unleashed for investment banking before economic and political uncertainty intervened.
Bankers have been telling investors for more than a year that their pipelines of new transactions were building and that corporate leaders and money managers just needed greater certainty to move ahead with deals.
“Our client engagement continues to be elevated, and we’re seeing it in our backlog, which rose for a fifth consecutive quarter,” Solomon said.
Goldman shares reversed early gains to trade down about 0.5 per cent in New York morning trading.
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