Goldman Sachs profits beat Wall Street estimates to more than double to $1.93bn

 

Goldman Sachs has beaten Wall Street estimates by doubling its quarterly profit through investing its own money and underwriting.

When the second quarter of 2012 is compared with the same period in 2013, Goldman's net income rose from $962 million to $1.93 billion.

Analysts had expected earnings of $2.82 per share, according to Thomson Reuters I/B/E/S, a surprise that led Goldman shares up 1.3 per cent at $165.13 before the bell.

Revenue in the bank's fixed income, currency and commodities, or FICC, trading unit, which reflects income from client trading, rose 12 per cent to $2.46 billion.

Goldman's investing and lending unit, which invests the firm's own capital, generated revenue of $1.42 billion in the quarter, up from $203 million a year earlier, driven by a tripling of revenue from debt securities and loans.

The bank's net revenue rose 30 per cent to $8.61 billion.

The bond market has been a big breadwinner for Goldman Sachs over the past decade, delivering nearly half of the company's revenue in the best year.

But Goldman's trading and investing units are undergoing changes, driven mostly by regulation, that have made it more expensive to be in many of the businesses that once delivered massive profits.

As a result, return-on-equity  - a closely watched measure that shows how much profit a bank can squeeze from its balance sheet - has been pressured in recent years as it has become more expensive for banks to hold risky assets.

Still, Goldman managed to produce 10.5 per cent ROE in the quarter, above the 8 per cent some analysts were expecting and the 10 per cent benchmark that analysts say is break-even to meet a bank's cost of capital.

Overall investment banking revenue rose 29 per cent to $1.55 billion, helped by a 45 per cent increase in underwriting revenue.

"Improving economic conditions in the U.S. drove client activity..." Chief Executive Lloyd Blankfein said in a statement on Tuesday, adding that "the operating environment has shown noticeable signs of improvement."

Goldman's results echoed similar trends in the investment banking units of JPMorgan Chase & Co and Citigroup Inc, whose fixed-income trading businesses also benefited from increased client activity early in the quarter.

Additional reporting Reuters

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