NEW YORK (Reuters) - Goldman Sachs Group (GS.N) said on Tuesday third-quarter earnings plunged 70 percent as one of the worst market slumps ever weighed on banking and trading results.
The largest U.S. investment bank reported net income of $845 million (473.3 million pounds), or $1.81 a share, for the quarter ended August 29, down from $2.85 billion, or $6.13 a share, a year earlier.
Investment banking revenue dropped 40 percent as deal activity dried up. Fixed-income trading revenue plummeted by two thirds from last year, reflecting weak credit and mortgage trading results, while equities trading revenue fell by half.
Net revenue fell by half to $6.04 billion from $12.3 billion.
Goldman Sachs shares fell about 4 percent before the bell Tuesday following the earnings report.
The following is reaction from industry analysts:
STEVE GOLDMAN, MARKET STRATEGIST, WEEDEN & CO., GREENWICH, CONNECTICUT
“Revenues were weaker than expected, and the stock is trading down. All eyes are really on the eye of the storm, which is AIG and the systematic risk it poses to the broader market.
“But it’s a tough environment and there are mumblings going on. People wondering whether (the remaining investment banks) should find some partners who can stem their liquidity concerns. They haven’t been affected so much today, but they may be tomorrow. It may seem far-fetched, but a lot of things that seemed far-fetched have come to fruition.”
MIKE HOLLAND, CHAIRMAN OF HOLLAND & CO, IN NEW YORK:
“This is an heroic effort... (it will) continue to add to the deserved lustre of the reputation of the top management at the firm.”
“I think we have probably not seen a more challenging environment than the one that we are going through right now, for them to perform in this manner in this environment is nothing short of heroic.”
“I think in this environment it will only reflect on them... Goldman Sachs will not reassure the market other than to show that Goldman Sachs can do a great job in any market environment.”
“It’s all about spin isn’t it? You look at them and think ‘Q3 profit down ... what is good about them?’ It’s a profit.
“The market seems to generally have a very positive view of Goldman, in contrast to what was happening to Lehman last week. Goldman does have a habit of nudging ahead of expectations so it reinforces the reputation they have on the Street as being a little bit smarter than the average bank.”
“The thing is, if you have expectations low enough and you’ve got some decent numbers, then you’re always going to surprise markets.
“Goldman didn’t give us the impression that they were going to be stellar numbers anyway. We go into these and we get some numbers which suggest it’s a business which is still making money when the rest of the world is falling apart.
“It gives the markets a bit of faith that the whole of the U.S. financial system isn’t rotten to the core and that there is still occasionally the odd shaft of good news to come through.”
MIKE LENHOFF, CHIEF STRATEGIST AT BREWIN DOLPHIN IN LONDON
“They’re obviously a clever lot... they have a lot of corporate business and there’s enough corporate activity still going on. They’re a survivor, along with Morgan Stanley. But the two can’t hold up the financial edifice which is crumbling all round us.
“I don’t think they’ll have an impact on markets, as Goldman is just one company in the midst of a financial system the backbone of which appears to have been broken. There’s almost a sense of hysteria in the market, and however good the results, they’re not going to stand in the way of markets wanting to push values lower.
“Nothing wrong with Goldman Sachs ... but the company has got investments in Tokyo which are performing badly and property stocks as well. We are use to earnings per share of $4-$5 at Goldman ... the market is saying: ‘so what?’
“The company is trading down in pre-market trade as the market has high expectations for the group. The market is depressed and no one wants to buy Goldman shares when the market is going down.”
ROBERT LUTTS, PRESIDENT AND CHIEF INVESTMENT OFFICER, CABOT MONEY MANAGEMENT
“On the surface, they look like they were stable, they are not writing-off additional problematic assets or things like that so you would think that would make people look more comfortable.
“The first look at them makes you think they (Goldman’s results) are positive.”
The stock is falling because “people are worried, are fearful. I’d continue to expect volatility. The initial reaction may be this is a good stock to sell because it’s good news.”
WALTER TODD, PORTFOLIO MANAGER, GREENWOOD CAPITAL ASSOCIATES, GREENWOOD, SOUTH CAROLINA:
“Goldman’s tier one capital ratio was 11.6 percent, but Lehman’s was 11 percent and they went into bankruptcy, so why even look at that number.
“Principal investments recorded a loss of $453 million, and until now that’s been a very positive area for them. To think that any financial firm can avoid being scathed by this meltdown is naive.”
DAVID DIETZE, PRESIDENT AND CHIEF INVESTMENT OFFICER, POINT VIEW FINANCIAL SERVICES IN SUMMIT NJ
“They’re saying trading activity is falling, while in prior announcements they boasted over the fact trading activity is strong...to (some) extent that’s a warning over earnings going forward.”
“I think you can’t just say it’s business as usual despite the market turmoil.”
CLEVELAND RUECKERT, BIRINYI ASSOCIATES INC, STAMFORD, CT:
“The fact that Goldman had earnings this morning probably didn’t outweigh the fact that you’ve had two major institutions pretty much fail this week and AIG seems to be well underway. Unless the Fed cuts this afternoon, I don’t think it’s going to be a good day.”
THOMAS DI GALOMA, HEAD OF GOVERNMENT TRADING, JEFFERIES & CO., NEW YORK
“It certainly calms fear. Treasuries are coming off on the Goldman (earnings) and announcement of upcoming Fed open market operation. It is just very volatile out there.”
Reporting by Dan Wilchins, Richard Leong, Elinor Comlay, Steve Johnson, Ellis Mnyandu, Joanne Frearson, Juan Lagorio