Goldman Sachs is the latest bank to report disappointing results in a dismal quarter for big U.S. banks. The investment banking firm reported declines in all of its main businesses for the first quarter of its fiscal year. Revenue from trading bonds, currencies and commodities (FICC) fell about 47 percent and accounted for 26.2 percent of total revenue in the quarter, considerably less than the 40 percent the business regularly contributed before the financial crisis. Equities trading revenue fell 23 percent and investment banking revenue fell 23.2 percent.
Overall, Goldman reported a 56.3 percent decline in net income applicable to common shareholders for the three months ended March 31. Net income fell to $1.2 billion, or $2.68 per share, compared with $2.75 billion, or $5.94 per share, a year earlier. According to Thomson Reuters I/B/E/S, analysts on average had expected earnings of $2.45 per share. Chief Executive Officer Lloyd Blankfein and President Gary Cohn wrote in their annual letter to shareholders that the firm will continue to wait out the downturn in fixed-income markets without making large-scale changes.
Goldman also reported a 40 percent drop in net revenue for the quarter, falling to $6.34 billion from $10.62 billion. This was lower than the average estimate of $6.69 billion. Up to Monday’s close, Goldman’s shares had fallen about 12 percent since the beginning of the year. The company is now the worst performer in the Dow Jones industrial average this year. On a call with analysts, Goldman’s Chief Financial Officer Harvey Schwartz said that the bank would “do what it takes” to maximize returns for shareholders.
The company has been aggressively cutting costs to offset the lower trading revenue. The cost cutting plan includes the elimination of more support positions, leaving open positions unfilled, reducing travel expenses, and spending less on marketing materials. So far the plan appears to be successful. Operating expenses fell 29 percent from a year earlier and the company earmarked $2.66 billion for compensation and benefits, less than the $2.92 billion estimate. Non-compensation costs fell to $2.1 billion, the lowest in seven years.
Market volatility is causing wariness in the bond trading and investment banking businesses. No large bank is immune. Concerns about the strength of the Chinese economy, uncertainty about interest rates in the United States, and falling oil and commodity prices have many investors sitting on the sidelines waiting for the markets to bottom. Yesterday, Morgan Stanley reported a 54 percent drop in adjusted revenue from fixed income and commodities trading and a similar drop in net profit. Its equities trading revenue fell 9.3 percent.