New York Times - Business

DealBook: Goldman Sachs Tops Estimates on Rise in Market Volatility

Photo Lloyd Blankfein, chief executive of Goldman Sachs.Credit John Moore/Getty Images

Updated, 10:26 a.m. | Goldman Sachs turned in significantly better third-quarter results than expected, thanks to a long-awaited improvement in trading conditions for Wall Street banks.

Goldman’s earnings rose to $ 2.24 billion, or $ 4.57 a share, from $ 1.52 billion, or $ 2.88 a share, in the third quarter of 2013. Analysts polled by Thomson Reuters had expected the bank to earn $ 3.21 a share.

The bank’s total net revenue rose 25 percent, to $ 8.39 billion, from the period a year earlier, far outpacing the $ 7.8 billion anticipated by analysts.

“The combination of improving economic conditions in the U.S. and a strong global franchise continued to drive client activity across our diverse set of businesses,” the bank’s chief executive, Lloyd C. Blankfein, said in a statement.

The results were driven by the trading division, where revenue rose 32 percent from the third quarter of 2013.

The most impressive results came from the bank’s so-called fixed-income trading desks, where bonds and derivatives are bought and sold. Revenue rose 74 percent from a sluggish quarter a year earlier.

Despite the stellar performance, shares of Goldman were down more than 2.6 percent in morning trading in New York on Thursday.

The bank said it had benefited from increased market volatility toward the end of the quarter.

Like the rest of Wall Street, Goldman had been damaged by the slowdown in trading that has been a side effect of the Federal Reserve’s stimulus programs. In the latest quarter, trading volume picked up as the economic situation in Europe and Asia increased market volatility, which provides opportunities for trading desks like those at Goldman.

Every major division of the bank increased its revenue from the third quarter of 2013. The smallest growth, of 15 percent, came from the bank’s investing and lending division, which buys and sells companies and real estate with the bank’s money.

Goldman pulled in more fees from its work advising on mergers and acquisitions, which sent revenue in the investment banking division up 26 percent from the period a year earlier.

The bank has been struggling to maintain its dominant status on Wall Street as regulations have circumscribed some of its most profitable operations. But the latest results showcased Goldman’s ability to thrive in difficult conditions.

Goldman continued to expand its investment management division, which is expected to be a more profitable business in the new regulatory environment. Revenue there rose 20 percent from the third quarter of 2013.

The bank bolstered profit by reducing the percentage of revenue set aside for employee compensation, even as it increased its head count 3 percent during the quarter.

Revenue in almost every division declined from the second quarter, in what is traditionally a stronger part of the year for Wall Street.

NYT > Business Day

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