Goldman's reality check

Goldman Sachs kicked off big-bank earnings with a strong report card, posting its second-best quarter in company history for revenue and profit. The great numbers were fueled by a surge in equity trading, with the company’s stocks business reporting $5.33 billion in revenue, the highest in Wall Street history. Investment banking was also a standout, with fees jumping 48% year over year thanks to solid deal activity last quarter.

But the stock still fell 1.89% today as investors focused on a 10% decline in fixed income, currencies, and commodities (FICC) revenue driven by weaker credit trading and a softer mortgage market. Loan loss provisions—the money banks set aside to cover potential loan defaults—rose almost 10% year over year, more than double estimates and the bank’s largest increase since 2020.

More bank earnings ahead

As the first major bank to report, Goldman is setting the tone ahead of results from JPMorgan, Citigroup, and Wells Fargo tomorrow.

From today’s market reaction, it’s clear that expectations are high for these banks—which haven’t been doing particularly well this year—while investors are worried about the effects of the war in Iran on banks’ bottom lines.

Still, some analysts see a more supportive setup emerging as volatility across markets—driven by AI disruption fears, private credit uncertainty, and geopolitical tensions—has created a favorable trading environment. According to Bloomberg, Wall Street’s biggest banks are on track to generate a record $18 billion in equity trading revenue this quarter, up roughly 14% year over year.

And unlike Goldman, peers may also deliver on fixed income. Bloomberg expects Bank of America to post record results in FICC trading, while Citigroup is projected to log its strongest quarter in that business since early 2020.

What to watch this week

This earnings season is a little different than others—less about beats and misses, and more about what’s beneath the surface.

Private credit is one area in focus. While analysts say the risks are more headline-driven than systemic, it’s still worth taking note of. Goldman said little on the topic, as its own private credit fund stayed below its 5% redemption cap, but the company’s significant rise in loan loss provisions suggests it’s bracing for a more challenging credit environment.

Geopolitics is another wildcard, as tensions involving Iran could stoke inflation and weigh on dealmaking. But if Goldman is any guide, activity is holding up: It’s already been a record quarter for mega-deals, with a steady IPO pipeline—including SpaceX and Anthropic—helping sustain momentum.

So as earnings roll in, the real story may not be which bank is growing, but which one is managing risk best in an increasingly uneven market.—SY