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Earnings Results: Goldman Sachs, Bank of America earnings shrink but offer some bright spots

Goldman Sachs Group Inc. and Bank of America Corp. shares pared some of their steep losses for the year Monday, as they aired second-quarter results that provided bright spots despite lower overall earnings from the year-ago period.

The two financial firms marked the last of the six megabanks reporting weaker profits amid stark changes in financial markets, which swung to the current bear market from a bull market a year ago.

Citigroup Inc.

reported better-than-expected results on Friday, while Wells Fargo & Co.

missed. On Thursday, JPMorgan Chase & Co.

and Morgan Stanley

both fell short of analyst estimates.

Goldman Sachs shares

rose 2.2% in afternoon trading, after it said its net income for the three months ended June 30 fell to $2.77 billion, or $7.73 a share, from $5.35 billion, or $15.02 a share, in the year-ago quarter.

Revenue dropped to $11.86 billion from $15.39 billion in the year-ago quarter.

Goldman Sachs handily beat the analyst estimates for earnings of $6.56 a share on revenue of $10.78 billion, according to FactSet.

Goldman said it booked a 79% drop in asset management revenue to $1.08 billion, while its investment banking revenue fell back by 41% to $2.14 billion as deal-making slowed drastically from a strong year-ago quarter.

These weak spots were partially offset by a 32% increase in global markets revenue to $6.47 billion and a 25% boost in consumer and wealth management revenue to $2.18 billion.

Goldman Sachs Chief Executive David Solomon echoed comments from other bank chieftains by flagging “increased volatility and uncertainty” in markets, rocked by inflation, interest rates hikes and Russia’s invasion of Ukraine.

“We delivered solid results in the second quarter as clients turned to us for our expertise and execution in these challenging markets,” Solomon said.

On a call with analysts, Goldman said it would slow the pace of hiring as it re-examines spending and investment plans amid the challenging operating environment.

CEO Solomon said he believes it’s “prudent” to be cautious given the uncertainty in how high the Federal Reserve will raise rates to fight inflation.

“The environment is very uncertain,” Solomon said, according to a FactSet transcript. “We don’t have a crystal ball to tell you exactly how monetary policy will navigate the inflationary environment that exists, but there’s no question that economic conditions are tightening to try to control inflation, and as economic conditions tighten, we’ll have a bigger impact on corporate confidence and also consumer activity in the economy.”

Jefferies analyst Daniel Fannon reiterated a buy rating on Goldman and said its global markets unit shined in the quarter amid strong performance in fixed income and equities. Asset management revenues “were also better than feared” while investment banking was generally in line.

Prior to Monday’s trades , Goldman Sachs shares have fallen 21.1% in 2022, compared with a drop of 13.5% by the Dow Jones Industrial Average

and a loss of 18.4% by the S&P 500
The Financial Select SPDR exchange-traded fund

has lost 18.0% so far this year. Goldman is a component of the Dow Jones Industrial Average, along with JPMorgan Chase.

Bank of America profit drops

Bank of America

shares rose 0.3% after the bank missed Wall Street’s profit estimate, but revenue matched expectations and net interest income beat. The company also said it expected to grow its net interest income in the third quarter.

Bank of America’s second-quarter profit fell by about one third to $6.2 billion, or 73 cents a share, from $9.2 billion, or $1.03 a share, in the year-ago quarter. Revenue increased to $22.7 billion from $21.5 billion.

Bank of America was expected to earn 75 cents a share on revenue of $22.7 billion, according to estimates compiled by FactSet.

“We believe our earnings generation over the next 18 months will provide ample capital to support growth, pay dividends, buy back shares and continue to invest in our people, platforms and communities as we grow into new regulatory capital level requirements,” said Chief Financial Officer Alastair Borthwick.

Net interest income increased by 22% to $12.44 billion, up from $10.23 billion in the year-ago quarter and ahead of the FactSet estimate of $12.32 billion. The company said it benefited from higher interest rates and loan growth.

Looking ahead, Bank of America said its third-quarter net interest income could increase by $900 million to $1 billion from the second-quarter figure of $12.44 billion, CFO Borthwick said on the call with analysts. Currently, Wall Street analysts expect third-quarter net interest income of $13.4 billion.

For the fourth quarter, Bank of America expects net interest income to grow even faster on a sequential basis than the third quarter projection, he said. Analysts currently expect fourth-quarter net interest income of $13.98 billion for Bank of America, according to a FactSet survey.

Providing a snapshot of still-healthy American spending patterns, Bank of America said consumer spending rose 13% to $2.1 trillion.

Breaking out its major business units, Bank of America said its consumer banking revenue rose 12% to $9.1 billion; global wealth and investment management revenue increased 7% to $5.4 billion and global banking revenue fell by $100 million to $5 billion. Global markets revenue fell 5% to $4.5 billion in the wake of lower investment banking fees and mark-to-market losses related to leveraged finance positions, partially offset by higher sales and trading revenue, the bank said.

Citi analyst Keith Horowitz said the bank missed earnings primarily on a $425 million regulatory charge.

“We expect to continue seeing linked quarter improvements through the rest of the year, which should drive upward revisions to consensus,” Horowitz said.

Bank of America stock has dropped 27.1% year to date, to underperform the financial sector ETF and the broader stock market.

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