Wow! While some banks--notably JPMorgan Chase and Citigroup--were able to deliver upside earnings surprises, Goldman Sachs did just the opposite. It reported second quarter earnings per share of $1.85, which sorely lagged analyst expectations of $2.27 a share. A year ago, the bank reported earnings of 78 cents a share. This is something of a shocker though the culprit was not.

People expected FICC-related revenue to be down, but the magnitude was the surprise. Fixed income, currency and commodities client execution revenue came in at $1.60 billion, which was 53 percent lower than the second quarter a year ago, reflecting weakness in mortgages, commodities and interest rate products. The firm has ratcheted back its risk significantly, and some reports maintain that various hedges moved against the bank significantly (we have always said there's a fine line between hedging and speculating at this level). These losses were offset partially by a strong performance in investment banking.

The strong deal environment lifted revenues 54 percent. The underwriting business was especially strong, rising 73 percent. Based on past performance, one might have expected the bank to trot a massive one-time gain on a principal transaction to further offset the FICC services, but that did not materialize for the second quarter. Not all banks suffered in FICC. Bank of America turned in a strong performance, for example. Its FICC revenues surged to $2.7 billion, up $467 million, as trading in everything but mortgages fared well. The accrual for compensation and benefits was $3.20 billion for the second quarter of 2011, a 16 percent decline year over year. The compensation-to-revenue ratio for the first half of 2011 stands at 44 percent.

For more:
- here's the release

Related articles:
Earnings season may bring upside surprises  
Goldman Sachs cracks down on employees with second jobs  
Upcoming earning to be like Citi or JPMorgan