Even Goldman Sachs can't escape the trading and revenue slowdown on Wall Street. The bank today was able to eke out profits of $1.4 billion and $2.88 a share for the third quarter — both beating analysts expectations of $1.3 billion and $2.46 a share — but was only able to do so in the face of falling revenue, which came in at $6.7 billion, down 22% from last quarter and 20% from one year ago and significantly below analysts' estimates. In early morning trading, the stock is at $157.47, down almost 3% on the day.
The reason? A major slowdown in client activity in Goldman's clients trading and activity in bonds, currencies, and commodities. Revenue in "FICC," or "Fixed Income, Currency and Commodities Client Execution," were only $1.25 billion, a 44% drop from a year ago. The bank attributed the drastic falloff to "a challenging environment, which was characterized by economic uncertainty, difficult market-making conditions in certain businesses and lower activity."
While every major bank experienced a large drop in FICC revenue, Goldman's was the most dramatic. The division of the company is usually its most successful and most profitable, but at least for the third quarter, it brought in less revenue than the FICC operations of JPMorgan, Bank of America, and Citi, a huge poke in the eye for a bank that is more or less synonymous with trading prowess.
Investment banking revenues of $1.17 billion were 25% lower than a year ago and unchanged from last quarter. Its advisory business only had $423 million in revenue thanks to "a decrease in industry-wide completed mergers and acquisition," while its underwriting business — issuing new stock and debt for companies — saw a 13% jump from last year, with $743 million in revenue, thanks to "higher net revenues from initial public offerings." And while it doesn't show up on the balance sheet this quarter, Goldman nabbed the most high-profile IPO in years: Twitter.
Goldman also brought in $1.62 billion in revenue from its equities business — another 18% fall from a year ago — thanks to "an environment characterized by lower levels of activity and volatility," the bank said.
So where did the profits, which were only down 2% from a year ago, come from? Only the banks asset management business showed any year-over-year growth in revenue, up 2%.
Instead, the profits, came from fairly dramatic managements of costs, reflecting a trend on Wall Street of flat or decreased revenues but more or less steady earnings thanks to cost-cutting. Goldman spent $2.38 billion — about 38% of its total revenues, on paying staff — a 35% drop from a year ago.
It also managed to cut costs in expenses besides paying staff, which were $2.17 billion, 9% lower than a year ago and 4% lower than the previous quarter. The bank also put aside $142 million for litigation and regulatory expenses, which the bank said was an increase over the quarter before.
Despite the so-so earnings, Goldman had a treat for shareholders: it bumped up its quarterly dividend to 55 cents a share from 50.
Matthew Zeitlin is a business reporter for BuzzFeed News and is based in New York. Zeitlin reports on Wall Street and big banks.
Contact Matthew Zeitlin at email@example.com.
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