Goldman flirts with uncharacteristic mediocrity

October 20, 2010

Goldman Sachs is coming down to earth with a bit of a bump. Sure, the Wall Street giant’s third-quarter earnings of $1.9 billion handily beat analysts’ expectations. That’s good news in any quarter, and especially after talk of a summer slowdown. But Goldman’s results usually lead the pack. Not this time.

Take the firm’s market-leading franchise in fixed income, currency and commodities trading, where revenue fell 14 percent from the second quarter, or around 10 percent once accounting for losses taken marking up the value of its own debt.

That’s not bad. But it’s the biggest drop of the major firms that have reported so far. Citigroup’s FICC revenue was almost flat, and JPMorgan’s actually improved slightly after adjusting for marking its liabilities to market value. Traders at a resurgent Bank of America raked in more than 50 percent more revenue than in the previous three months and crowed about logging a perfect record, meaning no trading losses on any day in the quarter.

It’s the second quarter in a row that Goldman’s traders have slipped. Previously, the firm’s equities unit took a hit after being on the wrong side of the volatility trade. That helped push the firm’s second-quarter return on equity down to 9.5 percent, excluding the one-off UK bonus tax and the cost of settling a lawsuit with the Securities and Exchange Commission.

This time, the firm only managed to improve to a humdrum 10.3 percent return. Compare that to JPMorgan: its investment bank clocked 13 percent, and its asset-management unit returned 25 percent.

Goldman’s showing is hardly disastrous. Its investment bankers enjoyed a decent summer, with underwriting revenue jumping 40 percent and M&A work bringing in 5 percent more lucre. Equities trading recovered somewhat, and at $3.77 billion Goldman’s FICC revenue is still the largest in its peer group — just.

And the relative underperformance of the bank’s traders of late may just be a blip in their otherwise enviable record. But for once these sometimes omniscient-seeming masters of the financial universe are looking much more like mere mortals.

Comments

Yeah, things like legal compliance must definitely be a drag on profitability.

Posted by ARJTurgot | Report as abusive
 

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