Bond trading has boosted Goldman Sachs (NYSE:GS) earnings

Goldman Sachs (NYSE:GS) posted a better than expected performance for the third-quarter with a total revenue of $8.39 billion transforming into earnings of $4.57 per share. In the premarket trade on Thursday, shares initially remained steady but fell by more than 2 percent. Trading revenue of the investment bank got a boost thanks to last month’s unexpected increase in the bond market activity thus its net profit increased by 50 percent.

Lloyd C. Blankfein, Chairman and CEO of Goldman Sachs (NYSE:GS) informed that the bank’s businesses which are appropriately diversified are being benefitted from increased client activity. This is due to the rising economic conditions in the U.S coupled with increasing strength of global franchise. He further added that the environment and motivation could change but their clients’ aspiration to follow up and accomplish their growth related strategic plans was visible from the power of bank’s transaction backlog.

In the last quarter ending Sept 30, net income attributable to common shareholders rose from last year’s $1.43 billion to $2.14 billion translating into $4.57 per share as compared to $2.88 per share last year. Three monthly dividends on each common share have also been increased to 60 cents. As per Thomson Reuters I/B/E/S, earnings of the firm were estimated as $3.21 per share on the average.

Bank’s revenue registered a healthy rise of 74 percent to $2.17 billion from its bond trading which is an infamously erratic business. This raise is attributable to stronger U.S. economic market. This raise is also due to incentives given by the European Central Bank and the unexpected departure of Bill Gross a trading superstar from the gigantic bond trading company Pimco creating strong ripples in the lethargic bond market.

However, a downward tendency has been observed since 2009 in Goldman’s (NYSE:GS) fixed income, currency and commodities (FICC) business because of the enforcement of latest rules discouraging the banks to trade on their own book. Consequently a number of people in the banking industry are unsure of the true revival of this business. In the previous quarter, bank’s FICC business made a contribution of 26 percent of its total revenue. This is in contrast with 40 percent of annual revenue in 2009 and 25 percent in the previous year.

The revival of equity capital markets in the current year has given a significant boost to the bank as it declared that earnings from equity underwriting rose to $426 million registering a
54 percent increase. According to Thomson Reuters, Goldman managed larger deals inclusive of $25 billion IPO of Alibaba and is ranked No 1 during the initial nine months of 2014 for its equity underwriting and advisory services.

Goldman (NYSE:GS) had also declared during the quarter that it would repurchase mortgage-backed residential securities, which were bought by Fannie Mae and Freddie Mac during the period from 2005 to year 2007 at an amount of $3.15 billion. Market selloff on Wednesday saw financials as the worst affected sector on the S&P 500. Earnings reported by banks have shown mixed results like Wells Fargo (NYSE:WFC) reported in line, JP Morgan Chase (NYSE:JPM) missed its estimates and Citigroup topped the estimates.