Tuesday 13 July 2021 2:28 pm

Rampant dealmaking pushes Goldman Sachs’ earnings ahead of estimates

Investment banking recorded its second-highest revenue quarter on record

US investment banking giant Goldman Sachs posted a strong set of results on Tuesday which surged ahead of analysts’ forecasts for second-quarter earnings.

The rise in profits at the Wall Street giant was driven by the firm capitalising on a record-breaking dealmaking period as companies took on cheap debt and deployed dry powder to snap up businesses that look undervalued.

Net earnings, or profits, were $5.49bn in the second quarter of this year, while net revenues over the same period reached $15.39bn.

Net revenues were $33.09bn and net earnings were $12.32bn respectively for the first six months of 2021.

Investment banking recorded its second-highest revenue quarter on record, reaching $3.61bn, 36 per cent higher than the same quarter last year, and second only to the first quarter of this year.

The Wall Street giant topped the rankings for worldwide M&A advisory, data from Refinitiv shows. Financial advisory revenue shot up 83 per cent and equity underwriting jumped 18 per cent over the quarter as a result.

Deals worth $1.5 trillion were announced in the three months to June 30, more than any second quarter on record and up 13 per cent from the record first quarter of the year, according to Refinitiv data.

David Solomon, chairman and chief executive officer, says: “Our second quarter performance and record revenues for the first half of the year demonstrate the strength of our client franchise and our continued progress on our strategic priorities.”

Goldman is less reliant on consumer banking to generate revenues, instead focusing on investment banking to drive earnings. This means the bank has been less exposed to possible loan defaults during the Covid pandemic compared to its competitors, such as JPMorgan.

However, it has expanded in this area, launching app Marcus in the UK, which offers savings accounts for British consumers.

The bank released $92m in loan loss reserves in the second quarter of this year, compared to JPMorgan’s $3bn.

Diluted earnings per common share was $15.02 for the second quarter of 2021 compared with $0.53 for the second quarter of 2020 and $18.60 for the first quarter of 2021.

Analysts on average had expected a profit of $10.24 per share.

Overall financial advisory revenue surged 83%, while equity underwriting revenue jumped 18% in the quarter.

“While the economic recovery is underway, our clients and communities still face challenges in overcoming the pandemic” Solomon added.

“But, as always, I am proud of the dedication and resilience of our people, who have worked tirelessly to help our clients navigate the ever-changing market environment.”

The earnings report comes as data shows UK banks have fared worse during the pandemic. Britain’s biggest banks’ profits plummeted by more than half over the last year.