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Goldman’s $1B profit doesn’t meet forecast
Investor cites global jitters as problem
NEW YORK — Investment banking giant Goldman Sachs announced Tuesday that it had more than doubled its profits in the second quarter to $1.05 billion — but even that wasn’t enough to satisfy its investors.
The results announced Tuesday came in well below what analysts were expecting because of a sharp drop in bond and currency trading. The 63 percent slump in that business from the previous quarter was much worse than the declines of 18 percent and 20 percent at rivals JPMorgan Chase & Co. and Citigroup Inc. Goldman attributed the decline to investors being nervous about global economic issues.
Goldman Sachs Group Inc., which has made a reputation for embracing risk before other Wall Street banks, also said it reduced a key measure of investment risk last quarter to the lowest level in five years. Goldman also said would eliminate as many as 1,000 jobs as part of an effort to cut costs.
The investment bank earned $1.85 per share in the three months ending in June, below the $2.35 per share that analysts surveyed by FactSet were expecting. Revenue was also less than analysts were expecting, declining 18 percent from the same period a year ago to $7.3 billion. Analysts had forecast $8.2 billion.
The unusual miss for Goldman sent its stock down 2 percent in afternoon trading, before a late rally limited the loss to 84 cents on a close of $128.49 per share.
Goldman earned $453 million in the same period a year ago, or 78 cents per share.
The bank’s chief financial officer, David Viniar, told analysts on a conference call that Goldman had reduced its “value at risk,” a measure of how much money it could lose in any given day, to the lowest level since late 2006. That ramping down of risk “may have been a bad decision, it may not have been a bad decision. We don’t know and we may not know for a while,” Mr. Viniar said.
Mr. Viniar said the bank hadn’t been able to predict markets swings as accurately as before because the volatility was related to political uncertainty rather than economic fundamentals. Financial markets have been unusually turbulent this past spring as Europe’s debt crisis appeared likely to spread beyond Greece and as the United States risked getting its top-tier credit rating cut because of a stalemate in Washington over raising the country’s borrowing limit.
Goldman will be cutting about $1.2 billion in expenses, which could include as many as 1,000 employees nationwide, Mr. Viniar said.
He also said the bank will be “prudent” with spending and maintaining high levels of reserves.
Goldman did relatively well throughout the financial crisis and its aftermath, earning a profit every quarter except for three months in late 2008. At the same time, the bank has been a lightning rod of wrath from the public and lawmakers, who see the storied investment house as a symbol of the kind of risky practices that helped bring on the financial crisis.
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