GOLDMAN SACHS is on track to post its worst earnings year since before the financial crisis after a slump in trading activity hit the investment bank’s second-quarter profit. The company reported an 11 per cent fall in net earnings to $962 million from $1.08 billion in the three months to June while net revenues fell to $6.6 billion from $7.28 billion.
Goldman has been trimming expenses and tweaking its businesses to maintain its earnings in the face of new financial regulations which are expected to erode its ability to generate profits. But the second-quarter drop in profits nevertheless prompted some analysts to criticise the bank for not lowering the pay of its bankers.
“At what point do you just recognise that the business has changed, because of capital or maybe the revenue environment, and that the new structural normal comp[ensation] ratios should be something materially lower?” Steven Wharton, analyst at JPMorgan, asked senior Goldman executives on yesterday’s conference call.
Its ratio of employee pay and benefits to net revenues was 44 per cent in the first half, Goldman said. That’s up from the 42.4 per cent reported at the end of last year and flat on the ratio reported for the first half of 2011, when profits were higher.
“We’re very cognisant of the returns our shareholders get versus what our employees get,” David Viniar, chief financial officer, said in response. “As you know, the ratio itself has come down pretty meaningfully in the last several years.”
Still, Goldman shares managed to nudge slightly higher after it beat much-diminished expectations. Second-quarter diluted earnings per share fell to $1.78 from $1.85. These were “better than expected results off of low expectations,” Credit Suisse banking analysts said. Its shares rose 19 cents to $97.89 at midday in New York.
– Copyright The Financial Times Limited
