Slowing down of M&A business from Goldman Sachs Q2

The settlement of legal issue for Goldman Sachs (NYSE: GS) in the past several quarters posted heavy cost to its finances. Even though we saw good performance from JPMorgan and other banks from last 2 quarter earnings reports, Goldman Sachs did not catch up the rally alongside the financial sector. This time, the company firstly announced the earnings without the legal cost. However, the slowdown of M&A business posted the biggest concern for investors. Also the firm’s flagship trading business didn’t bounce back as much as rival big banks that have reported results in the past week

Goldman’s second-quarter net income climbed to $1.82 billion, or $3.72 a share, from $1.05 billion, or $1.98 a share, a year earlier. Profit in the year-earlier quarter was weighed down by $1.45 billion in legal expenses that went toward an eventual mortgage-related settlement with the U.S. Department of Justice. Revenue dropped 13% to $7.93 billion from $9.07 billion. The Wall Street firm was expected to earn $3 a share on revenue of $7.58 billion, the average estimates of analysts polled by Thomson Reuters.

Goldman’s trading arm was the only division to post an increase in revenue from the second quarter of 2015, with revenue in that business up 2% to $3.68 billion from $3.6 billion. That lagged behind the double-digit percentage gains in trading that Goldman’s large peers reported over the past week. J.P. Morgan Chase & Co., reported trading revenue rose 25% from the second quarter of 2015, while Bank of America Corp.’s trading revenue gained 19% and Citigroup Inc. rose 15%.

Investment-banking revenue fell 11% to $1.79 billion from $2.02 billion in the second quarter of 2015. Goldman, Wall Street’s top adviser on M&A, reported revenue of $794 million from that business during the second quarter, down 3% from $821 million a year ago.

Most banks from Wall Street announced decent Q2 financial reports so far. The impacts from Brexit are really huge. It triggered tremendous trading activities on bonds and currencies. The inflow capital to US stock market and global government bond markets made the trading activities so popular in the financial area, thus improving the performance for all those international banks. Clearly, Goldman Sachs is not one of the biggest winners in the area and slowdown in its core business is a worse signal for the economy.

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