Skip to main content

Goldman Sachs fourth-quarter profit hit by lower bond trading revenue

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

The bank's bond trading revenue slid 11 percent, adjusted for an accounting charge, and was greater than those of competitors that have already posted fourth-quarter results. It is also a blow to a bank that counts bond trading, including fixed income, currency, and commodities, as one of its biggest businesses.

While Goldman is still a big player in bond markets, fixed-income trading revenue fell to 25.3 percent of total revenue in 2013 from 48 percent at its peak in 2009, including accounting charges.

The bond market began to soften in the middle of last year as investors prepared for the U.S. Federal Reserve to scale back on its bond-buying stimulus, and longer-term yields started rising. Trading income across Wall Street has been hurt by the move.

Even accounting for the difficult environment, Goldman's bond-trading results lagged peers. Bank of America Corp's fixed-income trading revenue rose 16 percent in the fourth quarter to a level 10 percent higher than Goldman's.

The business has also been under pressure from new financial regulations, forcing many banks to re-evaluate which of the various fixed income, currencies and commodities units they should keep.

On a conference call with analysts, Goldman executives said there appeared to be "excess capacity" across the industry in fixed-income staffing. They added that the bank was well-positioned to benefit if any rivals exit businesses.

They also said there was no change in the bank's strategy in commodities, as others such as JPMorgan Chase & Co and Morgan Stanley pull back.

The bank also said it had created a "Volcker implementation team," made up of senior executives from its control and business operations. The team is working to make sure the bank is following the requirements of the rule.

The Volcker rule, required under the 2010 Dodd-Frank law, prohibits banks from making speculative bets with their own money and restricts their investments in certain funds. The rule was finalized in December.

"When you boil it all down, the 2013 environment is just one where the world took two steps forward followed by one step back, a dynamic which you could see reflected in both price movements in the markets, and client activity," Chief Financial Officer Harvey Schwartz said on a conference call with analysts.

"To sum it up, while we wouldn't characterize the last two years as a normal cyclical environment ... it shouldn't be lost on us that the long-term trend is slowly and steadily improving," Schwartz added.

Goldman's shares fell 2.1 percent to $174.92 in mid-day trading on the New York Stock Exchange.

The weak trading results had a real effect on results. On Thursday, Goldman reported net income for 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.

Analysts expected earnings of $4.22 per share, according to Thomson Reuters I/B/E/S.

Excluding an accounting adjustment linked to changes in the value of debt the bank issued, Goldman's bond trading revenue fell 11 percent to $1.89 billion. Total revenue for the bank including the adjustment fell 5 percent to $8.78 billion from last year.

_0">

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

_1">

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.

_2">

Its return on equity, which measures how much profit it wrung out of its balance sheet, was 11 percent for 2013, 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 that Goldman generated before the crisis.

_3">

MIXED RESULTS FOR EQUITIES

_4">

The bank's equity businesses turned in mixed results.

_5">

Revenue from client stock trading fell 22 percent to $598 million, even as stocks hit new highs, while equity underwriting revenue doubled to $622 million as more companies tapped the market for capital.

_6">

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

_7">

The stock market resurgence also helped Goldman's investment management business, which provides advisory services to wealthy clients and manages money through funds.

_8">

The business reported a 5 percent increase in revenue to $1.60 billion in the quarter.

_9">

Goldman was ranked No. 1 in all major equity underwriting categories in 2013, according to Thomson Reuters data.

_10">

It led the high-profile initial public offering of Twitter Inc in the fourth quarter, which alone delivered an estimated $23 million in underwriting fees.

_11">

Revenue from advising on mergers and acquisitions rose 15 percent to $585 million.

_12">

Overall M&A activity declined in 2013, but there has been a resurgence in recent weeks. Other Wall Street banks have reported healthy backlogs of activity, signaling the business may be turning the corner after several years of decline.

_13">

(Reporting by Anil D'Silva in Bangalore and Lauren Tara LaCapra in New York; Editing by Ted Kerr and Jeffrey Benkoe)

_14">

Popular posts from this blog

Study Abroad USA, College of Charleston, Popular Courses, Alumni

Thinking for Study Abroad USA. School of Charleston, the wonderful grounds is situated in the actual middle of a verifiable city - Charleston. Get snatched up by the wonderful and customary engineering, beautiful pathways, or look at the advanced steel and glass building which houses the School of Business. The grounds additionally gives students simple admittance to a few major tech organizations like Amazon's CreateSpace, Google, TwitPic, and so on. The school offers students nearby as well as off-grounds convenience going from completely outfitted home lobbies to memorable homes. It is prepared to offer different types of assistance and facilities like clubs, associations, sporting exercises, support administrations, etc. To put it plainly, the school grounds is rising with energy and there will never be a dull second for students at the College of Charleston. Concentrate on Abroad USA is improving and remunerating for your future. The energetic grounds likewise houses various

Best MBA Online Colleges in the USA

“Opportunities never open, instead we create them for us”. Beginning with this amazing saying, let’s unbox today’s knowledge. Love Business and marketing? Want to make a high-paid career in business administration? Well, if yes, then mate, we have got you something amazing to do!   We all imagine an effortless future with a cozy house and a laptop. Well, well! You can make this happen. Today, with this guide, we will be exploring some of the top-notch online MBA universities and institutes in the USA. Let’s get started! Why learn Online MBA from the USA? Access to More Options This online era has given a second chance to children who want to reflect on their careers while managing their hectic schedules. In this, the internet has played a very crucial in rejuvenating schools, institutes, and colleges to give the best education to students across the globe. Graduating with Less Debt Regular classes from high reputed institutes often charge heavy tuition fees. However onl

Sickening moment maskless 'Karen' COUGHS in the face of grocery store customer, then claims she doesn't have to wear a mask because she 'isn't sick'

A woman was captured on camera following a customer through a supermarket as she coughs on her after claiming she does not need a mask because she is not sick.  Video of the incident, which has garnered hundreds of thousands of views on Twitter alone, allegedly took place in a Su per Saver in Lincoln, Nebraska according to Twitter user @davenewworld_2. In it, an unidentified woman was captured dramatically coughing as she smiles saying 'Excuse me! I'm coming through' in the direction of the customer recording her. Scroll down for video An unidentified woman was captured dramatically coughing as she smiles saying 'Excuse me! I'm coming through' in the direction of a woman recording her A woman was captured on camera following a customer as she coughs on her in a supermarket without a mask on claiming she does not need one because she is not sick @chaiteabugz #karen #covid #karens #karensgonewild #karensalert #masks we were just wearing a mask at the store. ¿ o