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Goldman beats as investment banking offsets trading woes

Goldman Sachs reported a 21 percent drop in quarterly profit as revenue from fixed-income trading fell in what Chief Executive Lloyd C. Blankfein described as "a somewhat challenging environment."

Net income applicable to common shareholders fell to $2.25 billion, or $4.60 per share, in the fourth quarter from $2.83 billion, or $5.60 per share, in the same quarter of 2012, the Wall Street bank said on Thursday. Analysts had expected earnings of $4.22 per share, according to Thomson Reuters.

Goldman's shares were down marginally at $178.50 before the start of trading on the New York Stock Exchange on Thursday. (Click here to track the company's shares in pre-market trade.)

The bank was stung by its heavy reliance on the bond market, which has historically been a source of great profit.

The bond market began to soften in the fourth quarter as investors prepared for higher interest rates, a shift that affected trading, underwriting and investment income for Wall Street banks.

Goldman's revenue from client trading in fixed income, currencies and commodities (FICC) dropped 15 percent in the period to $1.72 billion.

Scott Eells | Bloomberg | Getty Images

Revenue from bond underwriting dropped 14 percent to $511 million, while revenue from Goldman's own loans and debt investments fell 13 percent to $423 million.

Overall, Goldman's revenue dropped 5 percent to $8.78 billion compared with a year earlier.

The cost of compensation and benefits rose 11 percent to $2.19 billion during the quarter, which is when Wall Street banks make final decisions about bonuses.

For the year, compensation and benefits expenses fell 3 percent to $12.61 billion. Goldman paid out 36.9 percent of its revenue to employees in 2013, the lowest level since 2009.

Goldman's return-on-equity, which measures how much profit it wrung out of its balance sheet, was 11 percent – higher than the 10 percent minimum that analysts say banks must produce to meet their cost of capital, but well below the 30 percent returns Goldman generated in its prime.

The bank's equity businesses fared better than FICC as stocks hit new highs and more companies tapped the market for capital.

Revenue from client stock trading fell 22 percent to $598 million while equity underwriting revenue doubled to $622 million.

The bank's own equity investments delivered a 25 percent increase in revenue to $1.40 billion.

By Reuters


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