Goldman Sachs Earnings Tumble but Top Estimates


Goldman Sachs (GS) reported sharp declines in third-quarter earnings and revenue today, hurt by slower trading activity over the summer, but its profits still easily exceeded analysts' average forecast.

Wall Street's top investment bank said net income fell to $1.9 billion, or $2.98 a share, from $3.19 billion, or $5.25, earned in last year's third quarter. Analysts surveyed by Thomson Reuters were expecting Goldman to post earnings of $2.28 a share.

Revenue for the three months ended Sept. 30 dropped to $8.9 billion from $12.37 billion in the year-ago period, which matched analysts' average outlook.

"Our third-quarter results reflect solid performances across our businesses," Chief Executive Lloyd Blankfeinsaid in a news release. "While economic conditions continue to be challenging in a number of important markets, our focus is on helping our clients achieve their goals."

Investment Banking Held Up Well

Net revenue from Goldman's trading and its own principal investments fell 36% year-over-year to $6.38 billion, as the market has undergone a long period of unusually low volume and volatility. Revenue from fixed income, currency and commodities dropped 37% to $3.77 billion, Goldman said, while net revenue from equities declined 33% to $1.86 billion.

However, Goldman manged to partially offset the steep declines in trading with a stronger quarter from its investment banking business. Net revenue there rose 24% to $1.12 billion year-over-year and increased 22% vs. the second quarter. Goldman's securities underwriting business increased 9% as higher fees from debt underwriting partially offset a drop in equities underwriting. With interest rates at historic lows, more companies are opting to issue bonds rather than stock.

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Goldman is the fourth big-name financial-services company to report revenue weakness this earnings season. Dow component Bank of America (BAC), the nation's largest bank by assets, missed Street revenue estimates Tuesday. Citigroup (C) on Oct. 18 likewise posted third-quarter revenue that was short of Street estimates. Citi's net income fell 20% from the second quarter, due in part to lower revenue from its Securities and Banking division, where income declined 17%. Dow component JPMorgan Chase (JPM) last week reported disappointing third-quarter revenue, hurt partly by a drop in fees from underwriting stocks, bonds and advising on deals.

The drought in trading activity may already be reflected in Goldman Sachs's current stock price, wrote Brad Hintz, an analyst at Sanford Bernstein, in a note to clients ahead of the report. "It is no secret that trading was weak or that the retail investor has not re-embraced the equity markets," Hintz said. More important is Goldman's outlook for mergers and acquisitions underwriting for the remainder of the year, the analyst wrote.

Shares in Goldman are off about 10% year-to-date, underperforming the broader market by a wide margin. See the chart below.