Goldman's bond trading revenue slumps 40%

Goldman Sachs Group Inc has reported a 40 per cent slump in bond trading revenue.
Goldman Sachs Group Inc has reported a 40 per cent slump in bond trading revenue.PHOTO: REUTERS

NEW YORK (REUTERS) - Goldman Sachs Group Inc reported a 40 per cent slump in bond trading revenue, mirroring a broader weakness in trading activity that has plagued big United States banks in the latest quarter.

The slump was far worse than JPMorgan Chase's 19 per cent fall and Citigroup's 6 per cent drop, leading to Goldman's worst fixed-income results since the fourth quarter of 2015.

Goldman's revenue from trading fixed income, currency and commodities fell to US$1.16 billion (S$1.58 billion) from US$1.93 billion. Trading surged a year-ago around the Brexit vote.

The fifth largest US bank by assets is typically more reliant on bond trading revenue than its peers. That helped the bank earn big profits leading into the 2007-2008 financial crisis, but regulations have crimped that business.

The Wall Street bank's net income applicable to common shareholders was nearly flat at $1.63 billion in the second quarter ended June 30.

Earnings per share, however, rose to US$3.95 as number of shares outstanding decreased nearly 6 per cent. It topped analysts' average estimate of US$3.39 per share, according to Thomson Reuters I/B/E/S. Total revenue, including net interest income, fell 0.6 per cent to US$7.89 billion.

Goldman's operating expenses fell about 2 per cent to US$5.38 billion.

The lender's return on equity was 8.7 per cent. Analysts typically like to see a bank produce returns of at least 10 per cent to meet its cost of capital.

Goldman has been working to cut its reliance on trading and shift to more stable businesses like investment management. That division generated revenue of US$1.53 billion, up 13 per cent from the year-ago quarter.

The bank has also pushed into consumer lending, launching an online platform called Marcus in 2016. Shares of Goldman, a Dow component, fell 0.6 per cent in premarket trading.

The stock is the worst performing among the six large US banks. Up to Monday's close, it had lost 4.3 per cent in value this year, significantly underperforming the broader S&P 500 Financial Index, which has gained 6.7 per cent.

The company's arch rival Morgan Stanley is expected to report results on Wednesday.