--Firm revenue falls 9% from last year and 33% from 1Q
--CEO says market conditions deteriorated in 2Q
--Results still beat low expectations of analysts
(Updates with new information throughout and a quote from CEO in
third graph. Updates share price.)
By Liz Moyer and Saabira Chaudhuri
Goldman Sachs Group Inc.'s (GS) second-quarter profit fell 11%
as lingering market weakness and lackluster client demand for
advisory and trading services took a toll across several main
businesses.
Revenue of $6.6 billion fell 9% from last year and 33% from the
first quarter. Revenue for the first six months of the year fell
14%, to $16.6 billion, with declines across Goldman's three major
business lines.
"During the second quarter, market conditions deteriorated and
activity levels for both corporate and investing clients were lower
given continued instability in Europe and concerns about global
growth," said Lloyd Blankfein, Goldman's chairman and chief
executive, in a statement.
Still, the results beat analysts' diminished expectations.
Goldman posted second-quarter profit of $962 million, compared with
a year-earlier profit of $1.09 billion. Earnings per share of $1.78
beat the $1.16 per share consensus of analysts polled by Thomson
Reuters. The estimate had been as low as $1.12 in recent days.
Goldman's traditionally strong trading and investment banking
arms have been struggling for the past couple of years as investors
have shied away from making big bets in the markets and as
corporate chiefs hoard cash instead of make deals. Announced
mergers in the second quarter were at the lowest level since the
third quarter of 2009, according to Dealogic.
For the quarter, Goldman's total investment banking revenue came
in at $1.2 billion, down 17% from a year ago but up 4% from the
first quarter. That includes a 26% decline in advisory revenue and
a 37% decline in revenue from equity underwriting, to $239 million,
as the market for initial public offerings has been slow since the
troubled Facebook (FB) offering in May.
Second-quarter revenue from the company's fixed-income division,
which encompasses much of the money-making sales and trading
businesses that boosted Goldman's earnings and revenue in the past,
totaled $2.19 billion, up 37% from a year earlier but down 37% from
the first quarter. Bond trading helped lift overall trading, under
institutional client services, 11% for the quarter, to $3.9
billion.
Investment management revenue rose 5% for the quarter, to $1.3
billion.
Goldman lost $194 million on its stake in Industrial &
Commercial Bank of China and another $112 million on its equity
stakes in other companies, leading to an 81% drop in second-quarter
revenue from its investing and lending business, to $203
million.
The securities firm is facing regulatory headwinds that are
crimping its ability to make bets, take a view about the markets,
or invest its own money. Trading risk fell in the quarter, to $92
million from $95 million in the first quarter and $101 million one
year ago. Lower trading risk reflects caution on the part of
clients, Goldman has said in the past.
Part of the Dodd-Frank legislation, the Volcker rule is expected
to go into effect soon, and it limits how much of Goldman's own
money it can put at risk. Banks, including Goldman, are also
preparing to comply with international rules that ramp up the
amount of cushion it must have against potential losses. In June,
Goldman revealed three executives from its merchant-banking
business are retiring in a sign that the powerful Wall Street firm
is adjusting to new regulations.
Last month, Moody's Investors Service downgraded Goldman's
long-term ratings two levels as part of a broader downgrade of
major U.S. banks to reflect declining profitability in an industry
being rocked by soft economic growth, tougher regulations and
nervous investors.
Also on Tuesday, State Street Corp. (STT) said it has agreed to
acquire Goldman's hedge fund administration business for $550
million in cash.
Hedge fund administration is a relatively mundane
behind-the-scenes Wall Street activity, including tax reporting and
accounting. Outsourcing frees up time for hedge fund managers to
concentrate on their own business. In addition, hedge funds are
under pressure to strengthen risk management and compliance.
Shares of Goldman rose 2% to $99.60 in premarket trading.
Through Monday's close, the stock is down 25% in the last 12
months.
--Liz Rappaport contributed to this story
Write to Liz Moyer at liz.moyer@dowjones.com and Saabira
Chaudhuri at saabira.chaudhuri@dowjones.com