The better than expected surge in Goldman Sachs Group Inc's (NYSE: GS) revenue could lift sentiment and expectations for the Macquarie Group Ltd (ASX: MQG) share price.
But the good results may have the opposite effect on our big four ASX banks. I'll explain later.
The US investment bank posted a 41% jump in quarterly revenue to US$13.3 billion ($19 billion), it's second highest on record, reported CNN.
While there's a risk in extrapolating one offshore bank's results to an ASX entity, a breakdown of Goldman Sachs' earnings drivers in the June quarter bodes well for our home-grown millionaire factory.
The tale of two banks
Goldman's top-line figure was 36% ahead of consensus, while its earnings per share of US$6.26 was nearly double what the market was expecting.
This stands in sharp contrast to many of its peers that have posted weak results, including JPMorgan Chase.
The key difference is that Goldman is more leveraged to capital markets and less to the so called "Main Street" business, which includes loans.
Leverage to capital markets
The surge in the share market and volatile trading conditions across a wide range of securities ranging from credit to commodities gave the bank a big lift.
You could say Goldman's chief executive David Solomon owes the US Federal Reserve a big one. Record low interest rates and vast amounts of liquidity that's pumped into financial markets have been credited for the sharp rebound in risk assets since the COVID-19 mayhem.
However, the real economy continues to tank and consumers and businesses are struggling to repay loans.
It's a good thing that Goldman has little exposure to the weak areas of the economy.
Positive signs for Macquarie's share price
Coming to Macquarie, I think there's a chance the bank could overdeliver when it hands in its earnings report card in August.
While it's expansion into home loans looks poorly timed with the benefit of hindsight, its capital markets and trading businesses should more than offset any weakness in its loans business.
Let's also not forget the wave of capital raisings on the ASX, which investment banks like Macquarie collects lucrative fees off.
Good for Macquarie, bad for big four banks
Also, I believe the big four banks have been more aggressively winning share of the local home loan market at the expense of their smaller rivals with generous offers. This could have capped Macquarie's exposure to this market.
The risk of rising bad debts is a key reason why the Westpac Banking Corp (ASX: WBC) share price, Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price and National Australia Bank Ltd. (ASX: NAB) share price have been underperforming.
The Commonwealth Bank of Australia (ASX: CBA) share price is also under pressure although it's holding its ground better due to its stronger balance sheet.
CBA is the only one of the big four domestic banks that will report its full year results next month. Investors will be keenly watching both CBA and Macquarie.
