Goldman Sachs revenue slumps to lowest in more than four years

Goldman Sachs Group Inc's quarterly profit dropped by more than half.
Goldman Sachs Group Inc's quarterly profit dropped by more than half.PHOTO: EPA

NEW YORK (REUTERS) - Goldman Sachs Group Inc's quarterly profit fell by more than half and revenue slumped to its lowest in more than four years as market volatility hit the Wall Street bank's bond trading and investment banking businesses.

Goldman, wrapping up a dismal quarter for big U.S. banks, reported a 40 per cent drop in net revenue, reflecting declines in all of its main businesses.

As with other banks, Goldman's trading revenue was hit by sliding commodity and oil prices, worries about the Chinese economy and uncertainty about U.S. interest rates.

Highlighting the challenges facing the bank, Goldman's return on average common equity - a measure of how well the bank uses shareholder money - was 6.4 per cent in the quarter, down from 14.7 per cent a year earlier. Many investors think ROE should be at least 10 per cent to cover the cost of capital.

Goldman, whose shares were down 1 percent in early trading on Tuesday, said its revenue from trading bonds, currencies and commodities (FICC) fell about 47 per cent. Equities trading revenue, normally a strength, slid 23 per cent.

FICC accounted for 26.2 per cent of total revenue in the quarter - a far cry from the 40 per cent the business regularly contributed before the financial crisis. "The market was braced for a weak quarter, but we think the breadth of weakness on the top line will be a disappointment as people try to grapple with the timing of the recovery," Evercore ISI analyst Glenn Schorr wrote in a client note.

Goldman's traditional rival, Morgan Stanley, reported a 54 per cent drop in adjusted revenue from fixed income and commodities trading and a similar drop in net profit. Its equities trading revenue fell 9.3 per cent.

Goldman reported a 56.3 per cent fall in net income applicable to common shareholders to US$1.2 billion (S$1.54 billion), or US$2.68 per share, for the three months ended March 31. That compared with US$2.75 billion, or US$5.94 per share, a year earlier, when the bank recorded its best quarterly profit in five years.

Net revenue fell to US$6.34 billion from US$10.62 billion.