Bank results are a good proxy of what might be happening in the economy. Signs of an economy that is improving such as more M&A deals, more loans and fewer defaults are also the drivers of much better top and bottom line results at banking institutions. Here I will analyze the last earning results of three key U.S. banks and set some insights about the future.
Steady rise back to the top
The king of Wall Street is coming back
Goldman Sachs Group, Inc. (NYSE:GS) is indeed coming back to the best of its practices, generating great returns. The bank reported second quarter EPS of $3.70, well ahead of expectations ($2.87). This quarter’s up-side was largely top-line driven by Investing & Lending and Investment Banking results. Strong top line, which came up by 30% year-over-year, was not the only reason for Goldman’s out-performance. Exceptional expense and capital management was also a major factor. Going forward, I see core capital (Tier 1 common ratio increased to 13.5%) to continue rising from the current levels without affecting profitability ratios.
Following a quarter of strong buy-back activity (the bank bought 10.5 million shares) and a growing dividend (Goldman pays a 1.23% cash dividend yield), I think Goldman should be at any large capitalization banking portfolio. The bank has a unique investment banking franchise and solid balance sheet. Goldman trades at 1.1 times tangible book value and 11.5 times P/E.