Madcap Markets Push Goldman Sachs To Higher Trading Revenue, but Profit Falls

But what was bad for investment bankers was good for traders. Widespread volatility meant investors placed more trades across a variety of asset classes, and banks took advantage. At Goldman, second-quarter trading revenue rose 32% to $6.5 billion. The other banks also reported big increases in trading revenue.

However, all the major U.S. banks reported double-digit declines in profit, and most of them missed analysts’ expectations. Year-ago results were juiced by reserve releases across the industry, when the banks let go of some of the money they had socked away for pandemic losses.

This year so far has marked a comedown from what had been near-perfect conditions for Wall Street at the height of the pandemic. The stimulus from governments and central bankers in response to Covid led to a swift recovery from a recession and ebullient capital markets. The effects of the pandemic also led to changes in how customers and businesses operate, which sent corporate chieftains on a deal making spree.

The current environment is far less friendly. The highest inflation in decades, sharply higher interest rates, and significant geopolitical concerns have sent markets for a loop, with the S&P 500 recently finishing its worst first half in more than 50 years. That uncertainty has given corporate executives pause about taking their companies public or selling additional stock.

Likewise, the U.S. economy has been flashing disparate signals about its health. The finances of U.S. consumers and businesses remain relatively strong. Executives at Bank of America, which also reported second-quarter results on Monday, said their customers were spending and borrowing at a strong clip.

But higher costs for groceries, gas and rent are hurting many consumers, and U.S. households have started spending some of the savings they accumulated during the pandemic. Bank executives across the industry are concerned about a possible recession, although they haven’t seen clear evidence of one just yet.

Goldman CEO

David Solomon

pointed to conflicting signals on the inflation outlook Monday. He said the bank’s corporate clients continue to experience persistent inflation in their own supply chains, but added that the firm’s economists expect inflation to slow in the rest of the year.

Goldman’s second-quarter profit fell to $2.9 billion from $5.5 billion a year ago. Revenue fell 23% to $11.9 billion, though both beat the expectations of analysts polled by FactSet.

Bank of America’s profit fell 32% to $6.2 billion and revenue rose 6% to $22.7 billion.

Goldman shares rose 2.5%. Bank of America shares were roughly flat.

Within the investment banks, stock-selling businesses were hit especially hard. In 2021, companies raced to go public via initial public offerings and blank-check companies known as SPACs. That activity has ground to a halt so far this year.

Goldman is planning to slow its hiring pace in the second half of the year, after staffing up for the pandemic deal making boom. The bank had 47,000 employees at the end of June, up from about 41,000 a year ago. Finance chief

Denis Coleman

also said the bank would bring back annual performance reviews for its workers, a practice Goldman had mostly suspended during the pandemic.

Citigroup executives said last week they expected the slowdown to be temporary and wouldn’t change their pace of hiring more investment bankers. “You’re going to see us take a strategic look at this and a long-term look rather than just a shooting from the hip on the expenses side, because we’re building the firm for the long term here,” CEO

Jane Fraser

said.

At Bank of America, where total investment banking revenue fell 46%, Chief Financial Officer

Alastair Borthwick

said investment banking would “rise back to more normal levels in the next few quarters when economic uncertainty becomes more muted.”

Total trading revenue grew 25% at Citigroup, 21% at Morgan Stanley, 15% at JPMorgan and 11% at Bank of America. Goldman’s 32% jump was powered by a big rise in fixed income, currencies and commodities.

JPMorgan generated more trading revenue than any second quarter except during the middle of the pandemic and notched its best-ever second quarter for equities trading.

“Trading markets whipsawed with each release of economic data during the quarter,”

Daniel Pinto,

JPMorgan’s president and the head of the corporate and investment bank, told staff in a memo last week.

—Orla McCaffrey and David Benoit contributed to this article.

Write to Charley Grant at charles.grant@wsj.com