Litigation erodes Goldman Sachs profit

GOLDMAN Sachs profit tumbled 49 percent as fixed-income trading revenue dropped more than rivals and litigation costs rose fivefold. Shares of the company fell about 1 percent.

Net income decreased to $1.05 billion (R12.9bn), or $1.98 a share, from $2.04bn, or $4.10, a year earlier, the New Yorkbased company said yesterday. Excluding the $1.45bn legal expense, earnings were $4.75 a share, beating the $3.96 average estimate of 24 analysts.

The highest investmentbanking fees since 2007 were not enough to offset the decline in fixed income as concern Greece would be forced to abandon the euro weighed on volume. Goldman Sachs is in talks to be the latest major bank to settle a US Justice Department probe into sales of mortgage securities before the financial crisis.

“While uncertainty in the EU weighed on investors’ level of conviction, many of our businesses continued to benefit from generally improving economic conditions and healthy client activity,” chief executive Lloyd C Blankfein said.

Fixed-income, currency and commodity trading revenue was $1.45bn, down 35 percent from a year earlier, excluding accounting adjustments.

JPMorgan Chase said on Tuesday that fixed-income revenue had fallen 21 percent from a year earlier, with about half the decline caused by selling trading units. Bank of America on Wednesday reported a 9.3 percent drop for the business. Both firms reported at least a 13 percent jump in equities trading revenue.

Revenue at Goldman Sachs has fallen 1 percent to $9.07bn. The firm’s return on equity, a measure of profitability that takes into account how much capital the business uses, was 4.8 percent in the second quarter, compared with 10.9 percent a year earlier. It was 11.5 percent excluding the legal cost.

Compensation, the firm’s biggest expense, has fallen to $3.81bn, or 42 percent of revenue. Goldman Sachs has leaned on revenue gains in investment banking and asset management to cushion the decline from trading, which last year posted the lowest revenue since 2005. – Bloomberg

PHOTO: AP In this file photo a lighted sign marks the Goldman Sachs trading post on the floor of the New York Stock Exchange. The company reported a 49 percent decline in profits in its quarterly financial results yesterday.