Goldman Sachs reports $428 million loss
  • | New York Times | October 18, 2011 11:52 PM

Goldman Sachs, weighed down by problems in its private equity portfolio and the broader global economic woes, reported a loss of $428 million, compared with a $1.7 billion profit a year ago.

Mark Lennihan/Associated Press

People arrived at Goldman Sachs headquarters in Manhattan on Tuesday. The investment bank reported its second quarterly loss since going public in 1999.

It’s only the second quarterly loss for Goldman since the investment bank went public in 1999.

The company reported a loss of 84 cents a share, worse than analysts’ predictions of a loss of 16 cents, according to Thomson Reuters.

The troubles, which follow similar weakness in the second quarter, underscore the difficult environment for investment banks. Goldman, widely considered the savviest trading firm on Wall Street, had a significant revenue drop in crucial divisions like fixed income and investment banking amid the market turmoil.

The firm got whacked by negative net revenue of $2.48 billion in the investing and lending group. The results included a $1.05 billion hit on its private equity investment in the Industrial and Commercial Bank of China, a strategic investment made in 2006; I.C.B.C. stock fell roughly 35 percent in the quarter. The firm also booked net losses of roughly $1 billion related to equities, on top of net losses $907 million in debt positions.

“Our results were significantly impacted by the environment, and we were disappointed to record a loss in the quarter,” Lloyd C. Blankfein, Goldman’s chief executive, said in a statement. “However, we believe the strength of both our client franchise and our balance sheet positions us well for when economies and markets improve.”

Net revenue in the business that trades bonds, currencies and commodities was $1.73 billion, down 36 percent from year-ago levels. This division accounted for roughly 48 percent of all revenue generated by the firm in the third quarter. Net revenue from equities trading and commissions was up 18 percent, to $2.3 billion. The firm attributed this rise to higher commissions that resulted from increased activity in the quarter.

Goldman’s return on equity, a crucial measure of profitability, fell to 3.7 percent in the quarter, down from 10.3 percent in the year ago period. Five years ago, it was 32.8 percent.

The quarterly loss is likely to translate into smaller bonuses for Goldman’s roughly 30,000 employees. So far this year, the firm set aside $10.01 billion to pay compensation and benefits, down 24 percent for the same period in 2010. Firms accrue compensation all year and pay it out in the fourth quarter.

While Goldman has set less money aside to pay employees, the ratio of compensation and benefits to net revenue in the third quarter was 44 percent, in line with previous accruals. Goldman, like most Wall Street firms, has been cutting staff in recent months. At the end of the third quarter, it had 34,200 employees, down 1,300, or nearly 4 percent, from just three months ago.

In the wake of the downturn, Goldman has been working to reduce expenses. The firm’s third-quarter operating expenses including compensation were $4.32 billion, 29 percent lower than the third quarter of 2010.

Goldman isn’t the only bank feeling the pinch. Last week JPMorgan Chase reported that its third-quarter profit dipped 4 percent, to $4.26 billion from the year ago period. Citigroup had an impressive rise in profit, but much of it attributed to a one-time accounting gain.

The situation has weighed on the stocks of all the financial firms. Goldman’s stock is down 42.5 percent this year. Morgan Stanley, which is scheduled to report its earnings Wednesday, is down almost 44 percent year to date.

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