Goldman Sachs Group focus on cost-cutting in the second quarter helped the largest US investment bank beat muted earnings expectations on Tuesday, but its 12 per cent decline showed just how much its business model is under pressure.
Goldman said it would launch a new round of money-saving efforts, having already cut staff in each of the past four quarters and having reduced operating expenses by $457 million (£292.5m) over that period.
The cost-cutting, along with an aggressive share repurchase program, helped Goldman beat analysts' per-share profit expectations by a wide margin. Shares of the largest U.S. investment bank shot 2.6 percent higher in premarket trading to $100.25 following its report.
"I think a lot of the cost-cutting measures are starting to pay off to the bottom line," said Edward Deicke, a registered representative at JHS Capital Advisors.
But the underlying results showed the pressure investment banks face as trading volume drops globally and merger activity slows.
Goldman's investing and lending division - the last vestige of its once-powerful proprietary trading unit - reported an 81 percent drop in net revenue, due to losses on public equity investments. The unit lost $194 million on its investment in shares of Industrial and Commercial Bank of China Ltd (ICBC), and $112m of losses from other stocks.
Investment banking revenue also dropped as equity underwriting and merger advisory activity slowed.
Overall, Goldman earned $927 million, or $1.78 per share, down 12 percent from $1.052 billion, or $1.85 per share, a year earlier. Revenue fell 9 percent to $6.6 billion.
Goldman's earnings per share easily beat those expectations in part because the bank spent $1.5bn buying back 14.3m of its shares during the quarter.
Goldman cut 100 jobs during the second quarter and trimmed other costs, including compensation and professional fees, by 8 percent compared with the year-ago period, to $5.2bn.
City A.M. Reporter