(Reuters) - Goldman Sachs Group Inc’s profit plunged for the second straight quarter as bond trading revenue fell by a third amid market turmoil stemming from concerns about global growth.
Revenue fell in all of the bank’s major businesses except investment banking, which benefited from a surge in takeovers.The results are the latest example of how the grim trading environment is gutting Wall Street.
Turbulent trading, much stemming from worries about the flow-on effect of China’s cooling economy, was aggravated by uncertainty over the timing of a U.S. interest rate hike.
"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. (bit.ly/1OEqKQi)
Goldman, which released its results through its website instead of a press release service for the first time, said revenue from fixed-income, currency and commodity (FICC) trading, fell 33 percent to $1.46 billion.
This was the biggest year-over-year drop since the third quarter of 2013, when markets began to worry that the Federal Reserve was about to start tightening monetary policy.
Goldman joins JPMorgan Chase & Co, Bank of America Corp and Citigroup Inc in reporting a drop in revenue from bond trading.
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, whose shares were down 1 percent in morning trading, 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 for the third quarter ended Sept. 30, 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 - starkly below the 30 percent range the bank achieved before the financial crisis.
Many investors argue that banks need to earn at least a 10 percent ROE to cover the 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.
Goldman has stressed the bank’s commitment to trading, even as other banks have pulled back or exited the business to focus on less-volatile activities that require less capital. New rules aimed at improving the stability of the banking system also discourage banks from trading off their own balance sheets.
Still, FICC contributed just 21.3 percent to revenue in the latest quarter, compared with about 40 percent at its peak.
One bright spot was investment banking, where debt underwriting and M&A advisory stood out. Revenue in the unit rose 6.3 percent to $1.56 billion.
The bank led U.S. target M&A advisory work this year with 124 deals worth $522.2 billion as of Sept. 18, according to Thomson Reuters data. JP Morgan was second with $460.4 billion.
Fifty-four deals greater than $5 billion had been announced in the United States by mid-September, a 68 percent increase from the same period last year.
Revenue from equities trading rose 9 percent to $1.75 billion, matching the performance of JPMorgan. Citi’s revenue from the business rose 31 percent, however, while Bank of America’s increased 12 percent.
However, Goldman’s equity underwriting revenue experienced its weakest quarter in three years, more than halving to $190 million as many firms delayed going public in a stormy market.
IPO activity in the United States this year totaled $24.5 billion as at Oct. 9, down 42 percent compared to the same period last year, according to Thomson Reuters data.
The bank spent 16 percent less on employee compensation in the quarter.
Up to Wednesday’s close of $179.51, Goldman’s shares had fallen 7.4 percent since the start of the year, underperforming the S&P 500 index, which lost 3.14 percent.
Reporting by Richa Naidu and Oliva Oran in New York; Additional reporting by Sruthi Shankar and Rachel Chitra in Bengaluru; Editing by Ted Kerr