Amid the market collapse of the second quarter, Goldman Sachs (NYSE: GS) disappointed with earnings results today.
Combining with the market volatility, the costly settlement reached with the SEC knocked Goldman’s earnings. The firm reported profits of just 78 cents a share, down 83% and posting the worst quarter since the financial crisis trough of late 2008. Net income came in at $613 million, which is down from $3.43 billion in the same period last year. Revenue also fell 36 percent to $8.84 billion, compared with $13.76 billion in the second quarter of 2009.
The firm remains in the headlines, as last week Goldman agreed to settle with the SEC on fraud charges raised in April. As part of the settlement, the firm does not admit wrongdoing, but agreed better disclosures should have been provided for the mortgage securities sold. The fine of $550 million is one of the largest ever levied by the SEC.The results are also dented by the U.K. bonus tax which cost the firm $600 million, similar to figures posted by Citigroup (NYSE: C) and JPMorgan Chase (NYSE: JPM) in recent days. As the stock market dove in recent months, due to falling confidence, along with the Greece and BP disasters, Goldman’s equity trading unit’s revenues fell dramatically. It was also disclosed that Goldman has set aside 43 percent of revenue in the first half of 2010 for employee compensation in the form of salaries and bonuses, which is down from 49 percent in the same period last year.
On the topic of the SEC settlement, David A. Viniar, Goldman’s Chief Financial Officer commented in the conference call “We acknowledge that we made a mistake, we regret that we made a mistake and we know it was not good for us,” he said. “I can’t tell you if there were calls that we didn’t get, that’s impossible to measure. We feel that our clients have been pretty supportive of us, so far as we can tell.” Lloyd C. Blankfein, the firm’s Chief Executive commented on the results: “The market environment became more difficult during the second quarter and, as a result, client activity across our businesses declined. Looking ahead, we remain focused on helping our clients to raise capital, manage risk and invest for the future, which are all important to economic growth.”
While Goldman failed to meet market expectations, it is a rare miss. The firm’s traders, normally a boon for the firm, failed to carry the firm during the market volatility of the second quarter. As confidence returns to the markets, so should profits for Goldman Sachs. The impact of the financial regulatory reform act is still indeterminate, but a new norm will likely surface in the coming years.
