By Liz Hoffman
Goldman Sachs Group Inc.'s quarterly profit fell 6% as clients, spooked by trade tensions and interest-rate whiplash, kept their money on the sidelines.
The Wall Street bank reported quarterly profits of $2.42 billion, or $5.81 a share, on revenue of $9.46 billion. Both were lower than a year ago, but topped muted expectations of analysts polled by FactSet, who had expected earnings of $1.9 billion, or $4.89 per share, on revenue of $8.8 billion.
Expenses failed to fall in line with revenue as the bank continues to spend heavily on new initiatives like retail banking and wealth management.
Consumer-facing businesses buoyed both Citigroup Inc. and JPMorgan Chase & Co., which both reported higher quarterly earnings this week. Even given Goldman's efforts to make itself more of a Main Street bank, it still gets most of its profits from its traders and investment bankers, which leaves it more exposed than rivals to jumpy markets.
Its relatively new chief executive, David Solomon, is trying to speed up that pivot. He is adding steadier interest-generating projects, like a joint credit card with Apple Inc., and bought a network of wealth managers.
Banks' trading desks do well when clients are confident enough about the direction of stock prices, interest rates and other assets to place big bets. Uncertain investors tend to hunker down rather than risk a loss.
Uncertainty reigned in the second quarter. Escalating trade tensions between the U.S. and China, as well as trade friction with Mexico, rattled global markets in the quarter. Interest-rate cuts began to look likely, reversing investor expectations that the Federal Reserve would continue to raise benchmark rates as the economy strengthened.
Goldman's quarterly trading revenue was 3% lower than a year ago, driven by a 13% decline in fixed-income trading, which includes bonds, currencies and other products tied to interest rates and global economic indicators. Those traders made $1.5 billion in quarterly revenue, compared with as much as $6 billion a decade ago.
Things held up better in stock trading, a steadier business where banks can eke out fixed commissions regardless of which way prices are heading. Revenue of $2 billion rose 6% from a year ago, versus a 12% drop at JPMorgan, which also reported quarterly earnings on Tuesday.
Morgan Stanley, the largest stock-trading shop on Wall Street, will report on Thursday, wrapping up the quarterly earnings season.
Goldman's investment bankers, who broker mergers and help companies raise money through securities offerings, posted a 9% drop in revenue. Underwriting fees were down 12%, in line with JPMorgan and driven by a decline in debt underwriting. Companies may be holding off on new borrowings, expecting interest rates to fall later this year.
Merger advisory fees were 3% lower than a year ago, but they remain up 20% so far this year compared with 2018. The bank earned a $35 million payday on the largest deal completed in the quarter, the tie-up of defense contractors L3 Technologies Inc. and Harris Corp.
Revenue in Goldman's money-management arm, its smallest division, fell 14% from a year ago, when it pocketed a higher than usual share of profits from private-equity and hedge-fund investments it oversees.
Goldman is aiming to grow asset management, a steadier, fee-generating business that has benefited from the decadelong bull market. In May, Goldman signed a deal to acquire United Capital, a network of financial advisers who manage about $24 billion for affluent individuals.
Write to Liz Hoffman at email@example.com