Goldman Sachs’ sales slump, but it remains the king of Wall Street

Posted at 7:31 AM, Jul 16, 2019
and last updated 2019-07-16 10:19:06-04

Goldman Sachs is still the king of Wall Street — even though the investment banking powerhouse reported a slight drop in revenue and profit for the second quarter compared to a year ago.

The slight declines were not as bad as investors had expected. Goldman Sachs can continue to boast that it’s the top bank for merger advisory work and advising companies on initial public offerings.

Wall Street cheered the news, sending shares of Goldman Sachs more than 2% in early trading. Citigroup, JPMorgan Chase and Wells Fargo all also reported stronger-than-expected results in the past two days.

It looks like Goldman Sachs may not be hurt as much as other big banks by low interest rates, which could dent lending profit margins. CEO David Solomon also shrugged off worries about the US multi-front trade wars, as well as concerns about a slowdown in China and economic weakness in Europe.

“We’re encouraged by the results for the first half of the year as we continue to invest in new businesses and growth to serve a broader array of clients,” Solomon said in a press release Tuesday. “Given the strength of our client franchise, we are well positioned to benefit from a growing global economy.”

Solomon elaborated on this during a conference call with analysts Tuesday, saying that the firm still expects the US economy to grow 2.5% this year and that the global economy will rise 3.4% — despite “subdued” growth in Europe.

He also noted the firm was pleased that the Federal Reserve gave Goldman Sachs its blessing to return more capital to shareholders as a result of passing the Fed’s stress test. With that in mind, Goldman Sachs announced a dividend increase of 47% to $1.25 a share.

In the wake of the Great Recession, the Fed started conducting yearly stress tests (beginning in 2011) to ensure that large banks have enough capital to withstand another financial crisis like 2008. Banks cannot announce dividend increases or new plans to buy back stock unless the Fed gives their capital plans a green light.

And Solomon added that the recent shift in market sentiment during the past month and a half is a good sign. Stocks have surged on hopes that the US-China trade truce could eventually lead to a long-term agreement. The Fed has also suggested that rate cuts could be coming soon, which could lead to further stock market gains.

“We’ve seen a pause in the U.S.-China trade war, accommodative views from central banks and a continued march upward in global equity markets,” Solomon said. “Credit financing markets remain open, and strategic transactions are getting announced. As we look ahead, we remain cautious on the geopolitical front but optimistic in the resiliency of global markets.”

But the slowdown in revenue and profit is hitting Goldman Sachs employees. The company said compensation and benefits expenses — the so-called bonus pool — fell 2% from a year ago. Goldman’s headcount rose 3% over the same period.

The average compensation per employee in the quarter was about $93,174 for the quarter, compared to $98,121 in the second quarter of 2018.