Goldman Sachs profit beats estimates as bond sales boost investment banking

By Saeed Azhar and Niket Nishant

(Reuters) - Goldman Sachs' third-quarter profit beat estimates, fueled by a rebound in bond sales, stock offerings and mergers, sending its shares up more than 3% on Tuesday.

It joined JPMorgan Chase (NYSE:JPM ), which also gained from an investment banking revival, as corporate clients became more confident in the economic outlook, spurring debt and equity offerings.

"Our performance demonstrates the strength of our world-class franchise in an improving operating environment," CEO David Solomon said in a statement.

Robust U.S. jobs and wage growth have underscored the resilience of the economy, while an interest-rate cut by the Federal Reserve have also encouraged companies to pursue deals.

Investment banking fees jumped 20% to $1.87 billion. Leveraged finance, which refers to loans made to risky ventures like funding buyouts, and investment-grade activity powered a jump in debt underwriting.

Equity underwriting also fetched higher revenue, thanks to a slew of secondary share sales.

Goldman achieved "a powerful revenue beat across all segments, showcasing the rebound in capital markets is underway, and we believe has durability", said Stephen Biggar, banking analyst at Argus Research.

The bank also scored a key victory in the quarter, advising Cheez-It maker Kellanova on its nearly $36 billion acquisition by family-owned candy giant Mars, the biggest deal in the U.S. so far this year.

Goldman also benefited from easier comparisons with the year earlier, when it took sizeable writedowns on the consumer business and real estate investments.

"Goldman Sachs certainly advanced with a big jump in earnings per share," said Octavio Marenzi, CEO of management consultancy Opimas. "Goldman had a good quarter, but it could have been a brilliant one."

Revenue from fixed income, currency and commodities trading fell 12%, while equities trading jumped 18%.

PROVISIONS WEIGH

Goldman, however, booked $397 million in provisions for credit losses compared with $7 million a year ago, driven by higher charge-offs in its credit card portfolio.

The investment bank continues to take a hit from its ill-fated consumer business two years after stepping back from it. Goldman has since shifted its focus back on traditional mainstays of investment banking and trading.

The bank is exiting its credit card venture with automaker General Motors (NYSE:GM ), which has signed a deal with Barclays.

Goldman took a one-time hit of $415 million that included a writedown related to the transfer of the GM credit card business to Barclays.

Its card partnership with Apple (NASDAQ:AAPL ) is also facing an uncertain future, with JPMorgan in talks to replace Goldman as the tech behemoth's credit-card partner.

Total profit jumped 45% to $2.99 billion, or $8.40 per share, for the three months ended Sept. 30, higher than expectations of $6.89, according to the estimates compiled by LSEG.



Asset and wealth management - the unit that caters to institutions and high net-worth individuals - fetched 16% higher revenue than a year ago.

The bank supervised a record $3.1 trillion of assets in the third quarter. Its headcount was 46,400, compared with 44,300 as of June end and 45,900 a year earlier.

Source: Investing.com