Goldman Sachs beats estimates on investment banking, debt gains

Emerging Markets

JPMorgan Chase & Co., the biggest U.S. bank by assets, reported earnings on July 12 that beat estimates as trading revenue increased 18% and CEO Jamie Dimon said his traders performed well in managing a plunge in emerging-market assets. Citigroup Inc. yesterday reported a 68% jump in equity-trading revenue, topping analysts’ estimates.

Bank of America Corp., the second-largest lender, is set to release results tomorrow. Morgan Stanley, the sixth-biggest bank, is due on July 18.

The Investing and Lending unit, which includes gains and losses on Goldman Sachs’s own investments in stocks, debt, real estate, private equity and hedge funds, as well as loans, posted second-quarter revenue of $1.42 billion, up from $203 million a year earlier.

Analysts’ Estimates

That topped estimates of $850 million from Richard Staite at Atlantic Equities and $662 million from Citigroup’s Keith Horowitz. Gains from debt securities and loans were $658 million, up from $222 million a year earlier. Equity investments contributed $462 million, compared with a loss of $306 million in the second quarter of 2012.

“The size of the gains was surprising given the widening in credit spreads during the period,” Staite wrote in a note to investors.

Fixed-income, currency and commodity trading revenue was $2.46 billion, down 23% from the first quarter. That compared with analysts’ estimates of $2.67 billion from Horowitz and $2.45 billion from Staite.

Long-term interest rates rose and risk premiums on debt widened in June after Fed Chairman Ben S. Bernanke indicated the central bank might taper its $85 billion in monthly bond purchases, which have boosted demand for higher yielding assets. Blankfein had warned in May that some investors might be caught off guard when rates rose.

Goldman Sachs President Gary D. Cohn said in May that the notion that banks would have trouble generating fixed-income revenue amid rising rates was an “urban legend,” and added that the firm tended to be neutral to interest rates in its trading book.

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