GOLDMAN SACHS reported a steep drop in quarterly profits yesterday as the exceptional trading conditions that followed the 2008 financial crisis evaporated, exacting a toll on Wall Street’s most powerful profit engine.
Goldman’s net income after payment of preferred shares plunged 83 per cent in the second quarter, to $453 million, or 78 US cents a share, missing analysts’ estimates. Revenue from its trading and principal investments – the heart of Goldman’s business – fell nearly 40 per cent.
The bank also set aside more than $1 billion for the UK bonus tax and penalties it agreed to pay last week to settle with the Securities and Exchange Commission.
Goldman executives gave few signs that a pick-up in trading activity was imminent.
“The market environment became more difficult during the second quarter and, as a result, client activity across our businesses declined,” Lloyd Blankfein, Goldman’s chief executive, said in a statement.
The results came less than a week after Goldman settled SEC charges that the bank had defrauded investors when it sold a structured-debt security as the credit markets hurtled toward crisis. The deal, along with greater clarity on the shape of financial regulatory reform, has removed some of the doubts that had dogged Goldman for much of this year. The stock climbed 0.7 per cent in midday trading yesterday.
Net revenue fell 36 per cent to $8.84 billion, led by a sharp decline in equity trading. A spate of clients’ bets on equity volatility indexes at the start of the quarter went against Goldman, which had taken the other side of those trades, said David Viniar, the bank’s finance chief. But no factor loomed larger during the period than the dearth of client activity, he said.
Mr Viniar told the Financial Times that results from the stress tests on European banks could serve as a catalyst for renewed confidence.
Revenue from trading and principal investments dropped 39 per cent in the second quarter to $6.55 billion. – (Copyright The Financial Times Limited 2010)
