Goldman Sachs just reported its
worst revenue since theEuro crisis was plaguing markets last summer — $US6.72 billion where analysts expected
Net income was also essentially flat from this same period in 2012, hovering at $1.52 billion (last year it was $1.51 billion).
And on Wall Street, flat is a four letter word.
What’s more is that this is all going going down while bank’s operating expenses fell 25% for the quarter year over year. Compensation is down 35% year over year as well.
So what happened? Primarily Goldman suffered from a sickness that hit all of Wall Street this summer — dismal fixed-income trading revenues. As fears that the Federal Reserve would taper its quantitative easing program scared investors out of the market this summer, trading volumes slumped.
This carnage was expected. At the end of September, Brad Hintz, an analyst at Sanford C. Bernstein & Co. wrote that Wall Street would see a “a full-scale rout” in trading revenue, and Jefferies, a smaller boutique bank, sent out a warning shot to the entire Street that month when it reported that its fixed-income trading revenue fell 88% year over year.
Goldman, for its part, saw fixed-income trading fall 44% (more than any other major bank that’s reported in the last week). From their report:
Net revenues in Institutional Client Services were $US2.86 billion, 32% lower than the third quarter of 2012 and 34% lower than the second quarter of 2013.
Net revenues in Fixed Income, Currency and Commodities Client Execution were $US1.25 billion, 44% lower than the third quarter of 2012, reflecting significantly lower net revenues in mortgages and interest rate products, as well as in currencies. In addition, net revenues in credit products were lower, while net revenues in commodities were higher compared with the third quarter of 2012. During the third quarter of 2013, Fixed Income, Currency and Commodities Client Execution operated in a challenging environment, which was characterised by economic uncertainty, difficult market- making conditions in certain businesses and lower levels of activity.
This malaise seems to have crept into equities trading as well, as the bank reported a 16% year over year decline in that business.
Goldman also slipped in what was one of the hottest businesses in investment banking last quarter, debt and equity underwriting. The bank earned $US1.06 billion in that business in Q2, this quarter it’s down to $US743 million.
In his statement, CEO Lloyd Blankfein said “we saw various signs that our clients are prepared to act on significant transactions and we believe that the firm is well positioned to help our clients accomplish their objectives. As longer term U.S. budget issues are resolved, we could see an improvement in corporate and investor sentiment that would help lay the basis for a more sustained recovery.”
In other words — Goldman thinks The Street’s going to see mergers and acquisitions and trading activity pick up once this country gets its policy act together.
Given that this whole budget debacle has just been postponed to Q1 2014, we’ll see how that works out.