Business World

Saturday 25 November 2017

Goldman profits fall 12pc as demand remains weak

Lauren Tara LaCapra

GOLDMAN Sachs quarterly profit fell 12pc as investment income plunged, reflecting the pressure the bank faces as demand for its services remains tepid and markets fluctuate wildly.

Goldman was long praised by investors for making savvy bets on markets, and last decade it earned billions of dollars from these trades. But in the second quarter it lost $194m (€170m) on its investment in Industrial and Commercial Bank of China Ltd (ICBC) and $112m on its investment in other stocks.

Revenue for its investing and lending group fell 81pc overall. The bank has already scaled back its risk-taking, even before new regulations take effect limiting bets with its own money, and in the current market Goldman has grown even more conservative. It announced a new round of cost-cutting, and its shares fell 0.4pc.

With all this pressure, the bank posted a return on equity -- a measure of how effective Goldman is at wringing profit from its balance sheet -- of just 5.4pc for the second quarter.

Before the financial crisis, it was routinely above 30pc. "We are not going to have an acceptable return on equity in this environment," Goldman's chief financial officer, David Viniar, said. With Europe embroiled in a debt crisis, growth slowing in China, and the US economy limping along, Goldman has been pushed to look at more conservative ways to earn money, such as gathering more deposits and making more loans.

A report in 'The Wall Street Journal' said Goldman is building a private bank, and hopes to grow its loan portfolio from $12bn to $100bn.

The bank is betting less of its own money in markets, and many customers are wary, too. Fewer companies were buying rivals or selling themselves, and some were reluctant to issue stock, pushing Goldman's overall investment banking revenue down 17pc in the latest quarter. Equities trading revenue, including commissions, fees, and other services, fell 12pc.

Bright spots included a 37pc increase in fixed income, currency and commodity trading revenue, and a rise in the investment banking backlog from the first quarter, suggesting that underwriting and merger advisory revenue may soon climb.

But overall net revenue fell 9pc. Goldman reduced operating expenses by 8pc, and cut staffing levels by 100 to 32,300. (Reuters)

Irish Independent

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