Goldman Posts Flat Second-Quarter Profit

Goldman Sachs Group Inc.'s (GS) quarterly profit held steady from a year ago, bucking larger commercial banks that saw earnings plummet as the coronavirus tore through the U.S. economy.

The bank's profit of $2.4 billion was far better than expected and reflects a flood of corporate fundraising and torrid trading markets, offset slightly by higher reserves for expected loan defaults in what is expected to be a sustained and deep recession.

Quarterly revenue was the second-highest on record at $13.1 billion, a sign that Goldman -- with a smaller lending footprint than giant commercial banks -- has weathered this leg of the storm in better shape than rivals.

The bank set aside $1.6 billion for loan losses, sharply higher than in the first quarter, which included only a few weeks of the virus's toll. Stock analysts had expected Goldman to earn $1.12 billion, or $3.90 a share. Shares rose 2.5% in premarket trading.

The second quarter was banks' biggest test in more than a decade. Unemployment soared, companies lined up for cash and executives spun up models to see how their businesses would fare in what is likely to be a deep, and possibly sustained, downturn.

Write to Liz Hoffman at liz.hoffman@wsj.com

Corrections & Amplifications

This article was corrected at 08:24 a.m. ET because the original incorrectly said Goldman Sachs Group Inc.'s (GS) second- quarter revenue was $22 billion. Second-quarter revenue was $13.3 billion.

Goldman Sachs Group Inc.'s (GS) second-quarter revenue was $13.3 billion. "Goldman Posts Flat Second-Quarter Profit," at 8: 00 am. ET, incorrectly said it was $22 billion.

By Liz Hoffman

Goldman Sachs Group Inc.'s (GS) quarterly profit held steady from a year ago, bucking larger commercial banks that saw earnings plummet as the coronavirus tore through the U.S. economy.

The bank's profit of $2.4 billion, or $6.26 per share, was far better than expected and reflects a flood of corporate fundraising and torrid trading markets, offset slightly by higher reserves for expected loan defaults in what is expected to be a sustained and deep recession. Quarterly revenue was the second-highest on record at $13.3 billion, a sign that Goldman -- with a smaller lending footprint than giant commercial banks -- has weathered this leg of the storm in better shape than rivals.

The bank set aside $1.6 billion for loan losses, sharply higher than in the first quarter, which included only a few weeks of the virus's toll. Stock analysts had expected Goldman to earn $1.12 billion, or $3.90 a share. Shares rose 4.5% in premarket trading.

The second quarter was banks' biggest test in more than a decade. Unemployment soared, companies lined up for cash and executives spun up models to see how their businesses would fare in what is likely to be a deep, and possibly sustained, downturn.

Quarterly profit fell 51% at JPMorgan Chase & Co. and 73% at Citigroup Inc. Wells Fargo & Co. posted its first quarterly loss in 12 years. The three banks set aside a combined $28 billion in the three-month period to cover expected losses on loans to newly unemployed consumers and corporate borrowers whose business has evaporated.

The current economic crisis isn't a 2008-style banking system meltdown, and today's Wall Street giants hold more blow-cushioning capital than they did then. But that capital isn't bottomless, and a sustained recession would eat into it as loans go bad. Last month, the Federal Reserve ordered banks to continue a hiatus on share buybacks and capped their shareholder dividends, two moves that would preserve cash but have weighed on banks' share prices. The KBW Nasdaq index of bank stocks is down 36% this year.

Goldman is considered to be in a better position than larger commercial banks to weather at least this leg of the crisis. Without a big mortgage or credit-card business, it is less exposed to an increase in unemployment or ultralow interest rates.

Net interest from loans contributed just 12% of Goldman's revenue last year, versus half or more at JPMorgan and Bank of America Corp. Nearly two-thirds of its revenue comes from securities trading and investment banking.

Trading revenue nearly doubled from a year ago. Volatile markets are Goldman's specialty, and a playground the firm hasn't seen in nearly a decade. Revenue was 149% higher than the same period last year in fixed income trading, a more opaque business where better risk models and sharper noses make a difference during a chaotic market.

Goldman's investment bankers had one of their best quarters ever as companies rushed to sell stock and debt to the public to shore up their finances. Goldman helped raise cash for Ford Motor Co., cruise line Carnival Corp. and United Airlines Holdings Inc., each racing to survive the shutdown. Revenue in that business of $2.66 billion was 36% higher than the same period last year, as underwriting revenue from those deals and others offset a drop in merger fees.

While the turbulence of the quarter helped Goldman's core Wall Street businesses, it now threatens the firm's new consumer lending arm, Marcus, which launched about three years ago and had $23 billion of outstanding or available loans as of March 31. All are unsecured loans, which are often the first bills to go unpaid as struggling borrowers prioritize their home, car and other collateral from repossession.

The firm set aside $1.59 billion for future loan losses, mostly on loans to companies and trading clients and, to a lesser extent, consumers, it said.

Goldman says Marcus is built for the long haul. But its belated push onto Main Street means it missed the consumer- banking boom that its rivals enjoyed over the past decade and now faces only the potential bust.

Write to Liz Hoffman at liz.hoffman@wsj.com


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