Photograph by Jin Lee—Bloomberg/Getty Images
By John Kell
July 15, 2014

Goldman Sachs posted a 5.5% increase in second-quarter net profit, easily exceeding Wall Street’s expectations, due to strong revenue growth from its investment banking business, driven by underwriting sales of equity.

Overall, Goldman (GS) reported net earnings of $2.04 billion, up from $1.93 billion a year ago. On a per-share basis, which includes preferred stock dividends, earnings climbed to $4.10 a share from $3.70 a year earlier. Net revenue, including net interest income, jumped 6% to $9.13 billion.

Analysts surveyed by Bloomberg had expected a profit of $3.09 a share on $7.98 billion in revenue.

Several major U.S. banks have reported second-quarter results that have exceeded expectations for the latest quarter, and many of the top executives at those companies have struck a bullish tone about the state of the U.S. economy as they look ahead to the back half of the year. Executives at Wells Fargo (WFC) and Citigroup (C), for example, said the U.S. economy is gaining strength by adding jobs and as consumer spending increases. The housing market is also improving, according to some of those executives.

On Tuesday, Goldman also struck a positive tone, with chief executive Lloyd Blankfein saying the company was pleased with the results “in the context of mixed operating conditions during the period.”

The company’s results were fuelled by the investment banking business, with revenue rising 15% to $1.78 billion. Revenue jumped 9% for investment management. Those increases offset a 10% drop in commissions and fees and a 19% slide for market-making revenue – a testimony to the way activity in financial markets had fallen as tighter regulation has come into force.

For investment banking, the revenue growth was bolstered by a 20% jump in underwriting, mostly due to “significantly” higher net revenue in equity underwriting and reflecting an industrywide improvement. Debt underwriting was slightly higher.

Meanwhile, net revenue in fixed income, currency and commodities client executive dropped 10% from a year ago, hurt by lower revenue in currencies and to a lesser extent, commodities. Net revenue in credit products were slightly lower, though revenue increased in mortgages and interest rate products.

 

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