Business World

Thursday 14 November 2019

Goldman Sachs profit plunges as market turmoil hits bond trading

Goldman Sachs Group headquarters in New York
Goldman Sachs Group headquarters in New York

Goldman Sachs Group Inc's profit plunged 38 percent, 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.


Goldman said revenue from fixed-income, currency and commodity trading, fell 33 percent to $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 Inc 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 percent declines in FICC revenue, while Citi's revenue from the business fell about 16 percent. 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 percent as the broader market rallied.

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

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

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

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

Goldman made no mention of 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.


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