What Drove Goldman Sachs' Decent Second Quarter?

Goldman Sachs beat Citigroup and JPMorgan on the number of growth segments. What were the factors driving second-quarter earnings?

Jul 17, 2014 at 1:14PM
Goldman Sachs

Source: Ludovic Bertron

Goldman Sachs (NYSE:GS) closed Tuesday up nearly 1.4% following a premarket second-quarter report. JPMorgan, Citigroup, and Goldman reported earnings in close succession, providing an easy way to compare performances. Why was Goldman Sachs the standout of the three companies? 

Analysts estimated the second-quarter report would include $8 billion in revenue with $3.07 EPS. Goldman beat both estimates with $9.13 billion and $4.07, respectively. The beat also came with segment results that looked healthier than the competition.  

What were the three key investor takeaways from Goldman Sach's second quarter? 

Strengths: investment banking, lending and management 
Investors had to dig through JPMorgan and Citigroup's second-quarter release to find segments that managed a year-over-year revenue growth. Goldman Sachs had three segments that achieved that feat. 

Investment banking was up 15% to $1.8 billion driven by a double-digit percentage growth in underwriting and a flat performance from the financial advisory arm. The investment and lending segment revenue was up 46% from the prior year's quarter to about $2.1 billion. Private equity sales were the primary contributor to the segment's performance but the exact nature of those sales wasn't disclosed. Investment management revenue was up 8% to $1.4 billion mostly due to higher fees and an increase in managed assets. http://www.goldmansachs.com/media-relations/press-releases/current/pdfs/2014-q2-results.pdf pg. 3, para 2 

Goldman did fall in with the competition when it came to a segment plaguing the industry. 

Weak trading   
JPMorgan, Citigroup, and Goldman Sachs all reported drops in trading due to a combination of client wariness and lower interest rates from the government. Goldman Sachs continued that trend with a reported 10% year-over-year drop in fixed income, currency, and commodity trading to $2.2 billion. Equity trading fell 13% to $1.6 billion. The trading results left the institutional client services segment down 11% overall. 

Citigroup had reported a 26% drop in equity and 12% drop in fixed income. JPMorgan split the difference with a 15% drop in fixed-income trading and a 10% drop in equity trading. Bank of America was the oddball with a 5% fixed-income growth -- though said growth was due to a weak prior year's quarter and somewhat negated with a 14% drop in equity trading.   

Competitor comparison
JPMorgan and Citigroup beat analyst estimates for the second quarter but also showed more segment weakness than Goldman Sachs.

Citigroup's quarter was impaired by a $7 billion U.S. Department of Justice settlement regarding mortgages leading up to the housing crisis. The worst-performing segments were trading and global banking while the "bad bank" arm Citi Holdings provided a rare and needed win.

JPMorgan experienced weakness in trading and mortgages with asset management providing the strong performance. The company also addressed CEO Jamie Dimon's treatable throat cancer as investors worried about a potential successor for the high-profile leader.  

Foolish final thoughts
Goldman Sachs was hit with the industrywide problem of trading losses but had more strong-performing segments than the competition. The remaining concerns are lifting that SLR to provide more of a cushion and the fact that the 46% growth for investment and lending might not prove sustainable.  

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Brandy Betz has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. The Motley Fool owns shares of Citigroup and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers