Goldman Sachs Group Inc.’s investment bankers stitched together deals at a rollicking pace in the second quarter, softening the blow of a post-pandemic trading slowdown and helping earnings beat analysts’ expectations.

The 83 per cent gain from advising on mergers and acquisitions helped Goldman’s investment-banking group post a 36 per cent revenue increase last quarter, more than analysts had projected. That helped counter the big dropoff in trading activity from the frenzied pace a year earlier, as COVID-19 spread globally.

“Our second quarter performance and record revenues for the first half of the year demonstrate the strength of our client franchise and our continued progress on our strategic priorities,” Chief Executive Officer David Solomon said in a statement Tuesday.

The revenue surge at Wall Street’s leading mergers-advisory franchise came as corporations and buyout giants were on the prowl for deals in a recovering economy. Cheap financing for buyers and attractive valuations for sellers pushed global deals in the first half of the year to a record US$2.5 trillion, with the trend poised to continue.

The frenetic dealmaking pace has set off a ferocious battle for talent, with junior bankers being wooed with pay bumps at many firms to prevent defections and burnouts. Goldman has shown reluctance to participate in that frenzy, despite its own bankers setting off the debate on overworked staff. That demurral has fast become fodder for ridicule among popular finance meme-sters.

Shares of Goldman Sachs fell 0.7 per cent to US$377.75 at 9:34 a.m. in New York and have climbed 43 per cent this year. The bank is boosting its quarterly payout 60 per cent to US$2 a share, effective Oct. 1, according to a statement last month, after the bank cleared its latest stress test.

Record backlog

Investment-banking revenue of US$3.61 billion surpassed the average estimate of US$2.92 billion. The second-quarter figure includes US$159 million from corporate lending. The bank said in a statement Tuesday that its backlog, a closely watched indicator of revenues from M&A work yet to be completed, ended the quarter at a record level.

Solomon, who has been on the frontline of the push to bring employees back into the offices, was among the first to mandate a return-to-office plan for all staff as early as June, well ahead of peers. Stephan Feldgoise, Goldman’s co-head of the M&A business, said in a recent interview that the return to office isn’t easy, but makes a difference and shows up in the bank’s gain in market share.

Trading revenue is expected to decline across Wall Street, unable to match the manic pace of the coronavirus-induced market gyrations of early 2020. Goldman’s desk recorded US$4.9 billion, down from the US$7.18 billion recorded last year. The slowdown was driven by the fixed-income business, which posted a 45 per cent drop.

Goldman’s asset-management business, which also includes its growing alternatives-investing platform, turned in revenue of US$5.13 billion, more than double from a year earlier.

The higher-than-forecast asset-management revenue, driven by equity investments, was “not all that surprising considering the strength of the realization environment and Goldman’s determination to work toward a net reduction in direct investments,” Credit Suisse Group AGanalyst Susan Katzke wrote in a note to clients.

Equity portfolio

The bank has been trying to reduce investments of its own and lean more on fees from picking winnings bets for clients. Despite that, its equity investments climbed to US$21 billion from about US$20 billion at the end of the year. That was driven by higher markups on its portfolio even as it shed some US$5.5 billion of holdings.

Revenue from Goldman’s consumer business rose 41 per cent from a year earlier. The bank also had a net benefit from its provision for credit losses, much like its larger rival JPMorgan Chase & Co., but at a much smaller scale. The reserve reductions were seen in wholesale and consumer loans because of the continued economic recovery. Some of that was countered by provisions tied to expanding credit-card balances.

Here’s a summary of other key numbers:

• Net income totaled US$5.49 billion, its second-highest firmwide quarterly result. Earnings totaled US$15.02 a share. Analysts had expected adjusted earnings of US$10.14.
• Companywide revenue rose 16 per cent to US$15.4 billion, compared with the US$12.4 billion average estimate.
• Equity-trading revenue dropped 12 per cent to US$2.58 billion.
• Debt-underwriting revenue fell 4 per cent to US$950 while the firm pulled in US$1.24 billion from equity underwriting.