Goldman Sachs’s Bond-Trading Engine Revs Up to Beat Estimates

Goldman Sachs’s Bond-Trading Engine Revs Up to Beat Estimates
Goldman Sachs Group Inc.’s commitment to fixed-income trading through a seven-year slump paid off in the third quarter, as revenue from the business surged 49 percent to propel the firm past analysts’ earnings estimates.The rebound in bond trading added to the second quarter’s 33 percent advance, validating Chief Executive Officer Lloyd Blankfein’s strategy of sticking with the business as some competitors pulled back. The gains helped fuel a 47 percent increase in earnings for the three months ended Sept. 30, the New York-based firm said Tuesday in a statement.Blankfein, 62, has been cutting jobs, giving more responsibility to junior employees and lowering compensation to prepare the firm for when activity rebounds from the downturn, which saw industrywide revenue from fixed income fall by half last year compared with 2009. JPMorgan Chase & Co. reported third-quarter bond-trading revenue last week that beat estimates by $1 billion, and Citigroup Inc. said revenue from the business surged 35 percent.“For a really slow start to a year where you are digging yourself out of a hole, you get a couple good quarters and that pendulum around sentiment swings back to the middle,” Devin Ryan, an analyst at JMP Securities, said in an interview. “People say, ‘Maybe I shouldn’t be so dire about the outlook for this business.”’Goldman Sachs’s stock rose 2.3 percent to $172.90 at 9:35 a.m. in New York, the second-best performance on the Dow Jones Industrial Average. The shares have dropped 6.2 percent this year through Monday, trailing the 3.8 percent advance for the Dow.The bank is trying to show investors it can generate a return on equity above its cost of capital after years of returns often in excess of 20 percent were the envy of the industry. ROE in the third quarter was 11.2 percent annualized.Fixed-income trading revenue climbed to $1.96 billion excluding year-earlier accounting adjustments, beating the $1.7 billion average estimate of five analysts surveyed by Bloomberg. Equities-trading revenue of $1.78 billion surpassed the $1.69 billion estimate. The sales-and-trading division is overseen by Isabelle Ealet, Pablo Salame and Ashok Varadhan.Net income rose to $2.09 billion, or $4.88 a share, from $1.43 billion, or $2.90, a year earlier, according to the statement. That surpassed the $3.88 average estimate of 20 analysts surveyed by Bloomberg.Net revenue in the quarter rose 19 percent to $8.17 billion. That compares with the $7.41 billion estimate of analysts polled by Bloomberg. Expenses increased 10 percent to $5.3 billion, higher than the $4.9 billion estimate, as compensation and benefits jumped 36 percent from a year earlier. Through the first nine months, the company set aside 41 percent of revenue to pay its employees, up from 40 percent in the same period last year.Revenue from investment banking — run by Richard Gnodde, David Solomon and John Waldron — declined 1.2 percent to $1.54 billion, beating the $1.47 billion estimate.Underwriting SecuritiesDebt-underwriting revenue increased 17 percent to $652 million, topping the $586 million estimate. Revenue from equity underwriting rose 19 percent to $227 million, missing the $233 million estimate, and advisory revenue dropped 19 percent to $658 million, falling short …

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