Goldman profit plunges as market turmoil hits bond trading, bank is hardest hit

A Goldman Sachs sign is seen above the floor of the New York Stock Exchange.
A Goldman Sachs sign is seen above the floor of the New York Stock Exchange.PHOTO: REUTERS

NEW YORK (REUTERS) - Goldman Sachs' profit plunged 38 per cent, its second straight quarterly drop, depressed by a steep decline in bond trading revenue triggered by concern about global growth.

With the exception of investment banking, which benefited from a surge in takeovers, revenue fell in all of the bank's major businesses, from investment management to bond, currency and commodities trading.

The results are the latest example of how a grim trading environment, exacerbated in the most recent quarter by worries about the global impact of a Chinese economic slowdown, is gutting Wall Street.

"We experienced lower levels of activity and declining asset prices during the quarter, reflecting renewed concerns about global economic growth," chief executive Lloyd Blankfein said in a statement on Thursday (Oct 15).

Goldman said revenue from fixed-income, currency and commodity (FICC) trading, fell 33 per cent to US$1.46 billion, the biggest year-over-year drop since the third quarter of 2013, when it was squeezed by concern about tighter monetary policy.

JPMorgan Chase & Co, Bank of America Corp and Citigroup also have reported falling revenue from bond trading, but as deposit-taking banks they are less dependent on such income than Goldman.

Both JPMorgan and Bank of America reported 11 per cent declines in FICC revenue, while Citi's revenue from the business fell about 16 per cent. Arch-rival Morgan Stanley will report results on Monday.

"Investors sit it out in such a market. They don't trade,"said Erik Oja, an analyst at S&P Capital IQ. "Unless such a market rout happens again, I would expect fourth-quarter trading revenues at the banks to improve compared to third-quarter."

However, JPMorgan CFO Marianne Lake offered little hope for a quick rebound, saying earlier this week that analyst estimates for the current quarter appeared to be too high in light of slow market trading in the first two weeks of October.

Goldman's shares reversed losses in late day trading and gained 3 per cent as the broader market rallied on Thursday.

The bank said its net income applicable to common shareholders fell 38 per cent - to US$1.33 billion, or US$2.90 per share, from US$2.14 billion, or US$4.57 per share, a year earlier.

Analysts had expected earnings of US$2.91 per share, according to Thomson Reuters I/B/E/S. Net revenue fell 18.2 per cent to US$6.86 billion, far short of the average estimate of US$7.12 billion.

Return on equity fell to 7 per cent from 11.8 per cent in the same quarter last year - far short of the 30 per cent range the bank achieved before the financial crisis.

Many investors argue that banks need at least a 10 per cent ROE to cover their cost of capital.

Goldman made no mention of Mr Blankfein's cancer in its results statement or on a later conference call. The long-time CEO said last month he had a "highly curable" form of lymphoma and would be able to work mostly as normal during treatment.

Goldman has stressed the bank's commitment to trading, even as other banks have pulled back or exited the business to focus on less-volatile activities that require less capital. New rules aimed at improving banking stability also discourage banks from trading off their own balance sheets.

FICC contributed just 21.3 per cent to revenue in the latest quarter, compared with about 40 per cent at its peak.

One bright spot was investment banking, where debt underwriting and M&A advisory stood out. Revenue in the unit rose 6.3 per cent to US$1.56 billion.