Goldman Sachs Bond Trading Focus Pays Off
Goldman Sachs Group has reported a jump of 50% in its profit for the quarter as a pickup last month in activity in the bond market boosted its trading revenue, showing that the banks that stick with the volatile business can reap huge rewards.
Goldman’s FICC – fixed-income commodities and currency – business, which at one time contributed over 40% of the bank’s overall revenue, has declined annually since 2009 due to new regulations that have discouraged banks from making trades on their accounts.
A number of the large banks already have scaled back trading operations, while some have quit altogether amidst doubts over whether there will be a true rebound in the industry.
However, Goldman and a handful of other banks are picking up new clients and taking advantage of the volatility periods of the market such as what was seen during September.
Revenue at Goldman’s from its bond-trading skyrocketed by 74% to end the third quarter at $2.17 billion as strong economic data from the U.S., European Central Bank stimulus and the shocking exit of former Pimco trading icon Bill Gross shocked what was a very quiet market.
The FICC business at Goldman, the biggest at the bank, contributed 26% of its overall revenue during the three months ending September 30. Its growth surpassed by a large margin the gains earned by Bank of America, Citigroup and JPMorgan.
Goldman has become one of the largest beneficiaries of the equity capital market resurgence of 2014, with revenue rising 54% from equity underwriting to finish the quarter with $426 million.
Goldman Sachs is No. 1 for both advisory services as well as equity underwriting over the first three quarters of 2014. It was helped by working big business deals such as the Alibaba Group $25 billion IPO.
Lloyd Blankfein the CEO at Goldman Sachs said better conditions economically helped the performance of the bank, but was quick to acknowledge that sentiment and conditions can quickly shift.
Net income at the bank attributable to its common shareholders increased to nearly $2.138 billion equal to a per share amount of $4.57. That is compared to the third quarter of 2013, when per share net income was $2.88.
Analysts were expecting a per share net income of $3.21.
Net revenue totaled $8.39 billion representing an increase of 25% for the bank.
The annualized return on equity for Goldman Sachs sat at 11.8%, on a return of 11.2% for the first three quarters of 2014.
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