Lloyd Blankfein, Chairman and CEO of Goldman Sachs, in an interview on February 3, 2016.
Photograph by CNBC Photo Bank — Getty Images
By Stephen Gandel
July 19, 2016

Goldman Sachs is still a money maker.

Earnings at the leading Wall Street investment bank rose swiftly from a year ago and beat expectations in the second quarter. Nonetheless, a fair amount of the earnings increase came from a drop in legal expenses. What’s more, revenue dipped 16% from a year ago, reflecting fewer deals this year, and an uneasy equity market.

“Despite the uncertainty created by Brexit, we achieved solid results by continuing to serve our clients across our diversified franchise and by managing our business efficiently,” said Lloyd C. Blankfein, Chairman and Chief Executive Officer.

Shares of Goldman (gs) were up 1% in pre-market trading on the earnings news.

The Big Number: Goldman earned just over $1.8 billion, up 74% from just over $1 billion the bank earned in the same quarter a year ago. That translated to $3.72 a share, which was better than the $3.09 that analysts had predicted the company would earn. All of the earnings increase, and then some, though, came from a nearly $1.3 billion drop in “other expenses,” which includes legal costs. And while Goldman’s revenue beat expectations as well, it was also down. The biggest drop came from Goldman’s investing and lending unit, which is the division that invests the firm’s own money. Revenue from stock investments plunged 50% in the quarter. Equity underwriting fell 55% as well.

What it Means: Goldman has struggled to show that it could be a consistent money maker. The earnings in the second quarter, despite the volatile market, show that it is doing a better job of that. What’s more, Goldman was able to boost its earnings while at the same time lowering the risk it is taking. Goldman’s so-called value-at-risk, which tracks how much the bank’s trading desk could lose in one day, fell by 20% in the quarter, another sign that the once Wall Street gun slinger is making the transition to a more holstered bank.

What You May Have Missed: But there were also signs that that transition continues to be a disappointment. Return on Equity, a key measure of profitability for banks, was just 8.7% in the quarter. And while that was up from 4.8% a year ago, but it is still way down from the ROE it had before the financial crisis, which regularly topped 20%. Goldman has been slow to drop a number of businesses that are forbidden under post-financial crisis regulation, such as private equity investments. It is now starting to make that transition. The second quarter showed once again that the new Goldman may ended being a lot less shiny than the old one.

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