Scale of Goldman loss suprises even those braced for a fall

  • @dusborne

The seepage of red ink at Goldman Sachs had been well telegraphed but the depth of the quarterly loss announced by the investment firm yesterday was greater than most analysts had expected, reflecting the difficulties besetting the industry as a whole amid continuing economic uncertainty and yo-yoing markets.

The negative tally for the third quarter came to $428m (£274m) compared with a $1.7bn profit a year ago. It is only the second time that Goldman Sachs has failed to make a quarterly profit since going public 12 years ago.

"Well, we were braced for impact and we got it," Nomura's analyst Glenn Schorr wrote in a note to clients. With most investors having already factored in the quarterly dip, shares in the bank rose in morning trading in New York.

Goldman, in common with other large Wall Street banks, has been cutting costs. Since the second quarter it has shed roughly 1,300 employees. For the more than 30,000 still on its payroll, this quarter's results meanwhile foretell a cut in bonuses for 2012. The firm said it had set aside just over $10bn so far to cover compensation and assorted benefits for its staff, about 24 per cent less than it had this time last year.

Wall Street watchers, including angry protestors still crammed into Zuccotti Park in downtown Manhattan, may pause to wonder at how Goldman, with its reputation as a dollar-printing house, could be losing money. Yet there will be no rivers of tears. Even with the cuts in the bank's compensation budget the average pay packet this year for employees of the bank should come out at a handy $292,836.

Goldman said revenue slumped 60 per cent to $3.6bn in the quarter. The bank was hurt by a sharpdecline in underwriting business, reflecting a drop-off in public offerings as the economy continues to flirt with renewed recession. Investment banking revenue was down a third. Revenue from fixed-income trading also fell sharply.

"CEO and investor confidence as well as asset prices across markets were lower in the third quarter, given the uncertain macroeconomic and market conditions. Our results were significantly impacted by the environment and we were disappointed to record a loss in the quarter," chief executive Lloyd Blankfein said.

Goldman was also hit by markdowns on some of its equity holdings. The bank said it lost nearly $3bn on investments in stocks, bonds and its stake in the Industrial and Commercial Bank of China.

Bank of America meanwhile reported a quarterly profit of $6.23bn, in part because of accounting changes and assets sales. Trading revenue from its Merrill Lynch division showed a decline, however.