The country's improving economy gave a nice lift to second-quarter earnings at Goldman Sachs.
The bank posted profit on Tuesday that was twice what it reported in the period a year earlier, fueled by strong trading and investment banking results as companies looked to Goldman to arrange mergers and acquisitions.
Net income was $1.93 billion, compared with $962 million in the year-earlier period, topping analysts' expectations. Still, the results were not enough to propel Goldman shares higher. They closed at $160.24, down $2.76, or 1.7 percent. Investors, wondering if Goldman would be able to repeat the performance in coming quarters, opted to take some profit off the table rather than stick around and find out.
Goldman itself, while expressing optimism about the U.S. economy, was cautious about growth globally. Harvey Schwartz, Goldman's chief financial officer, said client activity improved during the quarter but was then damped a bit by "macro concerns" about countries like China.
"Ultimately, our clients are assessing the broader global economy, specifically whether a recovering U.S. will offset potential slower growth in other economic regions," he told analysts during a conference call.
Overall, Goldman's revenue in the quarter rose to $8.6 billion from $6.6 billion a year earlier.
On Wall Street, the last couple of months were dominated by a sudden and sharp rise in interest rates after the Federal Reserve indicated it might wind down its big bond purchase program, which has helped the economy recover from the financial crisis.
The surge in interest rates was felt most acutely in Goldman's fixed-income, or bond, department. Net revenue in the unit was $2.46 billion, up 12 percent, reflecting what the company said was significantly higher net revenue in currencies, credit products and commodities. Still, these increases were offset in part by significantly lower revenue in mortgages and interest-rate products.
Goldman also disclosed that it had set aside $3.7 billion in the quarter for compensation, up 27 percent from the period a year earlier. The current accrual represents 43 percent of revenue, which is in line with other years. Banks like Goldman set aside compensation during the year but do not pay it out until they determine earnings for the full year.