Trading, investment banking power beat at Goldman Sachs

Nicky Loh/Bloomberg

UPDATE: This article now includes commentary from Goldman's earnings call as well as commentary from analysts.

Tariff-induced economic uncertainty appears to have put plenty of wind in Goldman Sachs' sails, as the New York-based investment banking giant posted record trading revenues and increased profits Wednesday.

Goldman reported second-quarter earnings of $3.72 billion, which was up 22% from a year ago. Earnings per share of $10.91 exceeded expectations by a wide margin, as analysts had forecast earnings per share of $9.63, according to S&P Capital IQ.

The better-than-expected performance was driven by heady increases in investment banking and equities revenues, which spiked 26% and 36%, respectively, from the same period in 2024.

The performance of the wealth and asset management unit, which is Goldman's other major line of business, was muted, with revenue declining 3% from the quarter that ended on June 30, 2024.

Firmwide revenue totaled $14.6 billion, up 15% from a year earlier. The solid financial results pushed compensation costs higher. The $1.78 trillion-asset company reported quarterly operating expenses of $9.2 billion, up 8% annually.

"Our strong results for the quarter reflected healthy client activity levels across our businesses, our differentiated franchise positions and the talent and commitment of our people," Goldman Chairman and CEO David Solomon said in a press release. "Given the strategic decisions and investments we've made, we continue to believe that the firm is well positioned to perform for our shareholders."

Goldman was a major beneficiary of the Federal Reserve's decision earlier this month to reduce various big banks' regulatory capital buffers. The company recently reported a cut in its stress capital buffer of nearly 3 percentage points to 3.4%. When the new buffer takes effect on Oct. 1, it will reduce Goldman's required common equity Tier 1 capital ratio to 10.9% from the current 13.6% threshold.

Chief Financial Officer Dennis Coleman told analysts Wednesday that Goldman intends to operate at a capital level 50 to 100 basis points above the regulatory minimum, so the Fed's recent decision should result in a sizable amount of capital becoming available for corporate purposes.

Solomon, for his part, did not rule out merger-and-acquisition activity as one possible use of capital — particularly in the wealth and asset management sphere. But he said on the company's conference call with analysts that any deal would have to clear a "very, very high" bar from both a strategic and financial perspective.

"We're growing our asset and wealth management business," Solomon said. "There might be opportunities to accelerate that growth and the scale of what we're doing. That's what our focus would be."

Goldman has already taken a significant step toward returning more capital to its shareholders. Its board voted Monday to increase the company's quarterly dividend by 33% to $4 per share. Though Solomon said on Wednesday's earnings call that investing in initiatives to grow Goldman's business lines is the "first and primary focus," he added that he sees room to further expand the dividend.

"I do think, given what is going on with the capital stack and the capital regime, and given the way we're executing on our strategy, there is room for us to continue to drive that dividend higher," Solomon said.

Goldman reported investment banking fee income of $2.2 billion for the quarter ending June 30, up from $1.7 billion a year ago and $1.9 billion for the quarter ending March 31. Advisory fees grew 71% from the same period in 2024, while debt-underwriting revenue fell by 5% year over year.

The investment banking pipeline remains robust, "notably higher than the year-end 2024 level," Coleman said, with much of that potential new business centering around increased M&A activity.

"The level of dialogue has significantly increased," Solomon said. He attributed the uptick both to businesses' desire for scale and to a more welcoming regulatory environment.

"There's a confidence level on the part of CEOs that significant-scale industry consolidation is possible, so people are very engaged in that across a range of industries," Solomon said.

Goldman appeared to benefit during the second quarter from a turbulent global economy. Equities revenue of $4.3 billion was up significantly from a year earlier, setting a new record high for the 156-year-old company.

Trading income also boosted Goldman's first-quarter earnings, which totaled $4.74 billion.

Revenue from the bank's asset and wealth management unit totaled $3.78 billion for the three months ending June 30, as an increase in management and other fees was overshadowed by declines in equity and debt investments.

Despite the unit's revenue decline, total assets under supervision reached $3.29 trillion on June 30, up 12% from a year earlier.

Goldman's results "demonstrated continued progress on the firm's strategic initiatives," Moody's Ratings Senior Vice President David Fanger said in a statement.

Steven Chubak, who covers Goldman for Wolfe Research, wrote in a research note that he was impressed by "the magnitude of revenue strength across all lines of business."

Goldman's loan portfolio totaled $217 billion on June 30, up 18% from a year earlier. The bank reported second-quarter charge-offs of $290 million, down from $376 million in the three months ending March 31. Solomon said the company would stay vigilant about emerging risks.

"At this time, the economy and markets are generally responding positively to the evolving policy environment, but as developments rarely unfold in a straight line, we remain very focused on risk management," Solomon said in the press release.