Goldman Sachs Group Inc.’s traders countered the industry’s underwriting slump with revenue gains that raced past analysts’ estimates.

The trading operation posted a 32 per cent surge in second-quarter revenue that included another banner period for fixed income, which jumped 55 per cent, the New York-based firm said Monday in a statement.

The gains helped ward off the steep slowdown in investment banking as the volatility that spurred gains for trading weighed on capital markets and asset management. The global markets business, which houses Goldman’s traders, recorded US$6.47 billion of revenue in the quarter with rates, commodities and currencies helping drive the fixed-income gains.

Goldman was the last of the six biggest US banks to post results, with investors scouring the reports for clues on the health of the economy. Company executives last week said the US is well-positioned to withstand fallout from surging inflation, even if rising interest rates push the economy into a recession in coming quarters. Bank bosses warned that a potent mix of hurdles are still a threat, including inflation and the impact of Russia’s invasion of Ukraine.

Goldman shares have dropped about 20 per cent this year, pushing its price-to-book value below 1 -- an unwelcome development that tracks how investors value the firm’s net assets. The stock advanced 4.2 per cent to US$306.26 at 10:01 a.m. in early New York trading.

Chief Financial Officer Denis Coleman said on a conference call with analysts that the firm plans to slow hiring.

“Given the challenging operating environment, we are closely re-examining all of our forward spending and investment plans to ensure the best use of our resources,” Coleman said. “As a result, we’re taking a number of actions to improve our operating efficiency. Specifically, we have made the decision to slow hiring velocity and reduce certain professional fees going forward.”

Total operating expenses declined in the second quarter from a year earlier as the firm cut compensation and benefits, but the company also reported increases in costs from growth initiatives. 

Even as equity markets were hammered during the quarter, a rush by clients to reposition their books and adapt to growing global volatility helped boost the fixed-income business for major Wall Street firms. Citigroup Inc., the bank with the largest international exposure, handily beat expectations last week with an unexpectedly large haul from fixed-income operations. 

Goldman Sachs’s investment-banking revenue fell 41 per cent, reflecting a sharp drop in underwriting, a decline that had been well-telegraphed as clients steered clear of capital markets. Analysts were expecting it to fall 46 per cent. The merger-advisory business helped ward off a bigger drop, posting US$1.2 billion in revenue -- a figure that was almost double the numbers posted by the firm’s closest rival in that business. JPMorgan Chase & Co. took the No. 2 position in the quarter.

Goldman’s advisory dominance wasn’t enough to counter the steep slump in the underwriting business, especially in equity capital markets, where revenue shriveled 89 per cent. 

One headwind for the market has been the implosion of the SPAC market as Goldman and other banks fled what had been a red-hot market for the blank-check vehicles they helped create. Goldman even pulled out of working with most SPACs it took public, spooked by new liability guidelines.

ASSET-MANAGEMENT DROP

The firm’s asset-management business, which includes the alternatives-investing platform, turned in revenue of US$1.08 billion, a 79 per cent drop. The unit tends to post volatile results because its own balance-sheet investments drive performance. 

The bank has signaled its intent to turbocharge fundraising to get to a place where fees from managing outside capital outweigh investments. The company’s balance sheet equity investments stand at US$16 billion, down from US$22 billion at the end of 2019. Those investments lost US$221 million in the quarter on the broad selloff in markets.

The unit is facing a probe by the Securities and Exchange Commission focusing on the mutual-funds business in its asset-management arm. The inquiry is focused on whether some investments are in breach of metrics promised in marketing materials regarding environmental, social and governance criteria.

The consumer and wealth business posted revenue of US$2.18 billion, a 25 per cent increase from a year earlier. Revenue from consumer banking was up 67 per cent, buoyed by significantly higher credit-card balances and a boost from net interest income that has helped big banks in recent months. The numbers also included two key acquisitions Goldman recently completed: the General Motors credit-cards business and the GreenSky Inc. deal it closed in March.

At its debut investor day in 2020, Goldman said its consumer business would break even by this year. It has pushed out that target and budgeted losses exceeding US$1.2 billion this year, according to people with knowledge of the matter. The addition of new business lines, pandemic effects and the need to set aside more reserves in line with new accounting rules have contributed to that miss.

The bank’s second-quarter provision for credit losses was US$667 million, a result of its portfolio growth in credit cards as well as the impact of broad macroeconomic concerns, the firm said in its statement.

Other key results:

• Net income dropped 47 per cent to US$2.93 billion, or US$7.81 a share.
• Companywide revenue of US$11.9 billion compared with an average estimate of US$10.7 billion.
• Equity-trading rose 11 per cent to US$2.86 billion.
• Debt-underwriting revenue fell 52 per cent to US$457 million while the firm pulled in US$131 million from equity underwriting.