Goldman profit slides as bond trading wilts

NEW YORK Wed Jan 19, 2011 5:08pm EST

Traders work on the floor of the New York Stock Exchange near the Goldman Sachs stall July 16, 2010. REUTERS/Brendan McDermid

Traders work on the floor of the New York Stock Exchange near the Goldman Sachs stall July 16, 2010.

Credit: Reuters/Brendan McDermid

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NEW YORK (Reuters) - Goldman Sachs Group Inc posted a 53 percent decline in fourth-quarter profit as trading revenue tumbled, dashing hopes that the Wall Street bank had bucked a tough trading climate in debt markets.

Bond trading revenue, including commodities and currencies, slid 39 percent from the third quarter as worries about European sovereign debt and rising U.S. Treasury yields kept investors on the sidelines.

"Things were just dead" in December, though "it's sure a lot more active" in January, Chief Financial Officer David Viniar said on a conference call.

Profit fell for a third straight quarter, and revenue fell short of estimates, with year-over-year declines in investment banking and most other business segments. Viniar said Goldman's backlog of investment banking business fell from the third quarter, which may dampen revenue in the current quarter.

Goldman shares closed down $8.19, or 4.7 percent, at $166.49 on the New York Stock Exchange, their biggest one-day percentage decline since last April 30, Reuters data showed.

Results weighed on other stocks, as the Standard & Poor's financials index closed down 2.2 percent, while broader U.S. stock market indexes dropped more than 1 percent.

"If Goldman Sachs can't show a strong performance, then good luck to anyone else trying," said Simon Maughan, an analyst at MF Global in London.


The results capped a year that has tested Goldman Chief Executive Lloyd Blankfein, and also tested the bank's reputation for having the smartest bankers on Wall Street.

Goldman has been criticized for activities such as its management of a private offering by social networking company Facebook Inc, and its marketing of a mortgage-related security that led it to pay $550 million to settle regulators' civil fraud allegations last July.

Despite the weakness, Goldman shares have held up far better than those of many rivals, and trade around where they were when the financial crisis exploded in September 2008.

Goldman said it would pay out nearly 40 percent of full-year revenue in the form of compensation and benefits, a higher percentage than in 2009, though 2010 profit fell 37 percent and revenue declined 13 percent. Compensation per employee dropped 14 percent to about $431,000.

Quarterly net income after payment of preferred stock dividends fell to $2.23 billion, or $3.79 per share, from $4.79 billion, or $8.20 per share, a year earlier. Net revenue declined 10 percent to $8.64 billion.

Excluding one-time items, profit was $4.11 per share, according to Thomson Reuters I/B/E/S.

On that basis, analysts on average expected profit of $3.76 per share on revenue of $9 billion.

"It's a very difficult environment," said Keith Davis, an analyst at Farr, Miller & Washington, which owns Goldman stock. "Absent what we saw from JPMorgan, the Goldman results wouldn't have been a surprise. JPMorgan raised the bar."

Blankfein said in a statement the bank is "seeing signs of growth and more economic activity" in 2011.

JPMorgan Chase & Co last Friday posted a mere 8 percent drop in quarterly fixed-income revenue. In contrast, Citigroup Inc on Tuesday posted a 58 percent drop.

Shares of Morgan Stanley and Bank of America Corp, which report results later this week, fell 3.5 percent and 4.2 percent, respectively, on Wednesday.


Results so far have spurred questions about how much money banks can make from bond trading in 2011. Fixed income accounted for about half of revenue before the credit crisis, but is expected to account for less in the future.

Quarterly investment banking revenue fell 10 percent from a year ago to $1.51 billion, though Goldman reclaimed from Morgan Stanley its crown as the top mergers and acquisitions adviser.

Viniar declined to discuss Goldman's dealings with Facebook, including its decision this week to limit a private offering of Facebook stock to non-U.S. investors.

Goldman made more money from trading for its own account. Revenue from investing and lending rose 11 percent from the third quarter, accounting for 23 percent of total net revenue.

Viniar said new regulatory rules might limit some of the bank's investing and lending activities.

The bank said its average value at risk, or the amount it could lose from one day of trading with a 95 percent confidence level, was $120 million, down 1 percent from the third quarter and 34 percent lower than a year earlier.

For all of 2010, Goldman's profit after preferred stock dividends fell to $7.71 billion, or $13.18 per share, from $12.19 billion, or $22.13. Net revenue fell to $39.16 billion from $45.17 billion.

Long known for generous compensation, Goldman said total pay and benefits fell 5 percent to $15.38 billion in 2010.

As a percentage of revenue, pay and benefits totaled 39.3 percent in 2010, up from 35.8 percent in 2009 but more than 6 percentage points below the average in the last decade.

Goldman ended 2010 with 35,700 employees, up from 32,500 a year earlier, and Viniar said staffing could grow by a mid- to high-single-digit percentage in 2011.

(Additional reporting by Maria Aspan, Ben Berkowitz, Christian Plumb, Jonathan Spicer and Dan Wilchins in New York and Steven Slater in London; editing by John Wallace, Martin Howell, Gary Hill)

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Comments (4)
FLirishPM1959 wrote:
Well, time to make that phone call to Timmy Geithner, issue some more ‘dire consequences’ memos, get the Prez to put pressure on both houses of congress to pass another ’stimulus’ package and hand it over to the Goldman Sach’s of the world so their shareholders are happier….the fleecing of the American taxpayer in full view and nobody is doing anything to stop it.

Jan 19, 2011 8:27am EST  --  Report as abuse
run66 wrote:
I agree with you, FL! Let’s recall: It was our Treasury Secretary – Geithner (The guy who had trouble filling out his taxes!)- who mandated that AIG pay Goldman 100 cents on the dollar for their Credit Default Swaps! Only $20 Billion of taxpayers dollars, much of which Goldman payed out to their employees in the form of BONUSES amounting to an average of over $600,000 per employee!
Gee, ya’ gotta’ feel sorry for those Goldman employees, don’t ya’!!!!

Jan 19, 2011 9:08am EST  --  Report as abuse
hsvkitty wrote:
Oh my Gawd! The poor babies!

“Compensation per employee for 2010 fell 14 percent from 2009 to about $431,000, and total pay and benefits fell 5 percent to $15.38 billion.”

I am shuddering to think that Goldman employees will have to curb their lap dances, call girls and parties to twice a week. What is the world coming to?

never mind, Goldman et al will find other ‘vehicles’ to drive up their income and skirt stealthily around the new laws! How else can a corrupt bank do business in these troubled times I ask you?

PS: the other large banks are nearly as bad, but their time in the sun is on the horizon…

Jan 19, 2011 10:44am EST  --  Report as abuse
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