A spike in bond trading revenue and lower compensation costs push profit higher at Goldman Sachs. Fred Katayama reports.
Volatility is good for Goldman. A huge spike in bond and currency trading revenue helped drive the investment bank's quarterly profit up 50 percent. Goldman Sachs is known for its trading prowess. It outdid its peers in that department this quarter, taking advantage of the increased trading volumes. Its equity underwriting revenue shot up, aided by its role in the biggest IPO ever, Alibaba. Also helping Goldman shine: it lowered its biggest expense, compensation. It put aside less of its revenue to pay its highly compensated bankers than it did in the first half of the year. But it's paying out more to shareholders, hiking its quarterly dividend. Goldman's profit and revenue gains crushed analysts estimates. But Goldman's shares, which are flat this year, fell sharply at the open. UBS analyst Brennan Hawken expects the stock to come under pressure. He said, "The major driver of the beat was a lower comp ratio... While this will certainly help drive higher earnings and shows that management is focused on generating sufficient ROEs, it is not bullish for the revenue outlook."