Earnings down as Goldman avoids risks
GOLDMAN Sachs Group took less risk and earned less money from customers' trading last quarter, even as the Wall Street bank reaped big gains from the rising values of its stock and bond investments.
The bank's executives struck a cautious tone on a conference call with analysts, saying that events such as the US presidential election and the EU debt crisis will continue to weigh on earnings in the coming quarters.
"There is still so much political uncertainty out there that is driving markets, both for our clients and for us," said outgoing chief financial officer David Viniar. "And in that environment, it is very hard to have conviction and very hard to take risk, both for our clients and for us."
Goldman's average daily value at risk -- which represents how much money the investment bank could potentially lose in a day -- dropped to $81m (€63m), the lowest level in roughly six years.
Its return-on-equity, a key measure of how much profit a company can wring from its balance sheet, also remained low at 8.6pc. That's below the 15 pc level that shareholders generally expect investment banks to earn in better times and far below the 30pc or more Goldman posted just before the financial crisis.
All told, Goldman earned $1.5bn, or $2.85 per share, in the third quarter, compared with a year-earlier loss of $428m.
Last quarter included a charge to reflect the rising value of Goldman's own debt, which reduced earnings by $370 million.
The July-September quarter of last year included the cost of buying back preferred stock from Warren Buffett, as well as the losses on Goldman's stock and bond holdings.
Goldman's biggest business, trading, reported a 3pc increase in revenue.
A sizeable portion of that trading gain was at the expense of Knight Capital Group, which nearly went bankrupt in August after losing $440m because of trading glitch.
The one bright spot of Goldman's earnings was its investing and lending division, which consists of stocks and bonds that Goldman holds as investments. The value of those assets rose during the quarter after the US Federal Reserve unveiled a new programme to boost liquidity. (Reuters)