Trad­ing gains drive Gold­man Sachs prof­its sharply higher

Jamaica Gleaner - - MARKET REPORTS - – AP – AP

GOLD­MAN SACHS’ earn­ings soared in the third quar­ter, driven largely by trad­ing and in­vest­ment gains. The re­sults eas­ily sur­passed an­a­lysts’ es­ti­mates.

The New York-based bank said Tues­day that it earned US$2.1 bil­lion, or US$4.88 per share, up from US$1.33 bil­lion, or US$2.90 per share, in the same pe­riod a year ear­lier. Wall Street an­a­lysts were ex­pect­ing Gold­man to earn US$3.82 a share, ac­cord­ing to Fac­tSet.

While the firm’s in­vest­ment bank­ing di­vi­sion re­ported flat rev­enue, a re­flec­tion of the fact that fewer com­pa­nies did deals in the quar­ter, Gold­man’s trad­ing desks and the di­vi­sion where it in­vests its own money did ex­cep­tion­ally well.

Rev­enue in Gold­man’s fixed in­come, cur­ren­cies and com­modi­ties di­vi­sion jumped 34 per cent to US$1.96 bil­lion. Gold­man ben­e­fited from sim­i­lar forces that helped boost trad­ing of other ma­jor Wall Street banks, in­clud­ing JPMor­gan Chase, Cit­i­group and Bank of Amer­ica.

Wall Street banks ben­e­fited from volatil­ity in bond and cur­rency mar­kets in the third quar­ter as Bri­tain voted to leave the Euro­pean Union, send­ing the pound swing­ing wildly, and as in­vestors tried to guess when the Fed­eral Re­serve will be­gin rais­ing in­ter­est rates.

Strong per­for­mance on its trad­ing desks is par­tic­u­larly im­por­tant to Gold­man, since it does not have a re­tail bank­ing fran­chise to gen­er­ate con­sis­tent rev­enue.

The firm’s re­turn on com­mon eq­uity, a mea­sure of prof­itabil­ity that is closely watched by an­a­lysts, was a strong 11.2 per cent in the quar­ter.

“We saw solid per­for­mance across the fran­chise that helped counter typ­i­cal sea­sonal weak­ness,” said Gold­man Sachs CEO Lloyd Blank­fein in a pre­pared state­ment.

Gold­man’s in­vest­ing and lend­ing di­vi­sion, where the firm puts its own money into a myr­iad of in­vest­ments from stocks, bonds and ven­ture cap­i­tal, had a strong quar­ter as well. Rev­enue there rose to US$1.4 bil­lion from US$670 mil­lion.

In pre­pared re­marks and re­spond­ing to ques­tions from in­vestors, Gold­man ex­ec­u­tives did talk about the firm’s re­cent moves into con­sumer bank­ing. Gold­man pur­chased the de­posits of GE Cap­i­tal ear­lier this year to cre­ate GS Bank, which of­fers on­line sav­ings and CD ac­counts, and last week an­nounced the launch of ‘Marcus,’ a per­sonal loan ser­vice named af­ter one of the com­pany’s founders.

MA­JOR CHANGE

The launch of Marcus is small so far, open to only cus­tomers with high credit scores and who get an in­vi­ta­tion from Gold­man to ap­ply. But Gold­man has talked openly about be­com­ing more a player in con­sumer bank­ing. It’s a ma­jor change for a com­pany whose pri­mary busi­ness for nearly 150 years was serv­ing the well-to-do and ad­vis­ing com­pa­nies on deals and merg­ers.

“Like with any new ef­fort, we are tak­ing a slow and me­thod­i­cal ap­proach,” Har­vey Schwartz, Gold­man’s chief fi­nan­cial of­fi­cer, said in a con­fer­ence call with in­vestors.

The firm set aside US$3.21 bil­lion to com­pen­sate its em­ploy­ees, up 36 per cent from a year ear­lier, which is not a sur­prise with how well Gold­man’s trad­ing and in­vest­ment busi­nesses did. Gold­man’s staff is largely paid in bonuses that ac­cu­mu­late through­out the year, and it’s gen­er­ally the firm’s largest ex­pense each year. needs of emer­gency wa­ter, food and medicine are met.

“We are aware that it will be more ef­fec­tive to dis­trib­ute seeds to farm­ers timed with their next plant­ing sea­son, in early 2017, ide­ally with fer­tiliser or com­post to help re­plen­ish the soil which has been flooded in salt­wa­ter,” said Jean-Claude Fig­nole, a se­nior Ox­fam of­fi­cial in Haiti.

A ‘flash ap­peal’ for Haiti, is­sued by the UN hu­man­i­tar­ian agency in Geneva, was not get­ting any­where near the level of sup­port of­fi­cials are seek­ing, with only about 5 per cent pledged so far of the US$120 mil­lion re­quested.

AP

The Gold­man Sachs world head­quar­ters in the Lower Man­hat­tan area of New York.

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