Goldman reports a 'sharp' drop in profits

The bank's income has dropped from $3.4bn to $613m. Ouch.

Last Updated: 31 Aug 2010

Oh, how the mighty have fallen: once the toast of the City, Goldman Sachs, that great payer of bonuses and general squanderer of taxpayer money, has reported a ‘sharp’ fall in second-quarter profits after it was hit by the triple whammy of a $600m (£392m) tax on bonuses from the UK government, a record $550m fine from a US regulator, and trading revenues that are almost 40% down on last year. All of which adds up to a net income of just $613m – sounds like a lot, until you compare it to last year’s figure of $3.4bn. Ouch – that’s got to sting.

Overall revenues for the bank dropped to $8.8bn in the three months to June, down 36% from a year ago and 31% on the previous quarter. While analysts had been anticipating a fairly dismal display by the bank, taking into consideration extenuating circumstances (ie. the bonus tax and the fine), as well as a difficult performance in the markets, it has still managed to undershoot expectations by about 17%.

And it gets worse: without one significant windfall, the bank would have ended up recording a loss in the second quarter. After a transfer restriction expired on an investment in the Industrial and Commercial Bank of China, Goldman was able to mark up the value of its stake in the company to the increased market value of the Chinese bank – which meant the value of the investment jumped by $900m. Serendipitous timing.

Experts have put the poor performance down to an increased aversion to risk in the City: Peter Kenny, the managing director of Knight Equity Markets, said ‘the appetite for risk continues to recede’ – not great news for Goldman’s, which, even in the wake of the recession, still centres its business model firmly around high-risk investment in virtually every arm of its business, from trading to product sales.

But at least the company’s workforce, those City slickers whose battered morale (and wardrobes) must be in urgent need of bolstering with a dose of this season’s Armani, won’t be too badly affected by the situation. The bank has announced that despite the drop in profits, it still plans to pay its staff $3.8bn in bonuses. Although at an average bonus of $273,000 per head for the first six months of the year, that does represent a drop of 43% on a year ago. The poor dears.  
That said, after months of harsh criticism from politicians and public alike, the results do seem to make Goldman’s look conveniently mortal. It wouldn’t be the first time a company had presented its results very carefully in order to gain some political capital, and this particular firm’s savvy in such matters is legendary. And yet somehow, it’s still hard to feel much sympathy…

In today's bulletin:

Ocado floats - just - at hefty discount
BP begins big sell-off with $7bn deal
Apple shrugs off 'death-grip' woes as it smashes forecasts
Goldman reports a 'sharp' drop in profits
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