Global uncertainty dents Wall Street banks

Challenging conditions in equity markets, reflecting uncertain global political and economic conditions, have hit the profits of Wall Street's major investment banks, Goldman Sachs and Lehman Brothers warned yesterday.

Challenging conditions in equity markets, reflecting uncertain global political and economic conditions, have hit the profits of Wall Street's major investment banks, Goldman Sachs and Lehman Brothers warned yesterday.

While both banks saw profits rise strongly in the three months to 31 August compared with the same time last year, they attributed a dip in levels from the second quarter of the year to more than the traditional summer lull.

Richard Fuld, the chief executive of Lehman, said "a host of uncertainty has weighed on the market" in the past three months. There was "continued turmoil in the Middle East, and a threat of terrorism hung over the Olympics and Republican convention", Mr Fuld said.

Higher interest rates and the surging cost of oil had also contributed to a lack of confidence among investors and had dampened the desire for corporate clients to consider mergers and acquisitions.

Lehman recorded net income of $505m in the third quarter, up from $480m in 2003 but down from $609m in the second quarter.

Total net revenues at Goldman fell 18 per cent to $4.5bn from the second to third quarters, although it was up 20 per cent on 2003.

David Viniar, Goldman's chief financial officer, said: "The equity environment is clearly tougher than it has been for much of this year. Volatility is down and volumes are down."

Due to uncertainty in the market, business leaders were less confident about embarking on major corporate projects, Goldman said. One notable exception was Philip Green's ultimately unsuccessful approach to Marks & Spencer, with Goldman Sachs chosen as his main financial adviser.

Goldman's role in the acrimonious battle was seen as unusual by the City, as it has historically been the adviser to companies trying to defend themselves against hostile offers.

Mr Viniar said Goldman's role did not signify a change in its mergers and acquisitions strategy. "We thought Philip Green was a good person and his company was good to back," he said.

Goldman saw its revenues in investment banking fall 7 per cent from the second quarter to $890m, while its advisory business suffered a 12 per cent decline to $451m. The tough conditions of the past few months were in stark contrast to the buoyant conditions earlier this year. But Goldman said that despite seeing a slowdown in most lines of its business in the third quarter, 2004 has already become its best year since becoming a public company.

Lehman, number five among Wall Street securities houses, said its financial results were buoyed by a 16 per cent rise in bond trading, its biggest business.