A year-end blow for Goldman Sachs
Thursday, January 20, 2011
For Wall Street powerhouse Goldman Sachs, a year that included a $550 million settlement with federal regulators over fraud charges and a public shaming before a Senate committee ended on a financially humbling note.
The firm reported Wednesday that its fourth-quarter earnings declined by 52 percent, to $2.4 billion, from $4.9 billion in the comparable period a year earlier. Investors punished Goldman's stock, which fell 4.7 percent.
The decline in Goldman's bottom line was all the more striking because it contrasted with results at other big financial firms, such as Wells Fargo, which on Wednesday reported a 21 percent increase in fourth-quarter profit, and U.S. Bancorp, which reported a 59 percent increase.
In recent days, J.P. Morgan Chase reported a 47 percent increase, and Citigroup, formerly a major money loser that required a dramatic federal rescue, reported it had swung sharply to a profit.
As the financial sector continued to climb out of a historic hole, the numbers reflected a divide between Wall Street and Main Street.
Goldman, an investment bank that has little involvement in retail banking, fell behind as improvements in the broader economy lifted financial firms with more of a Main Street focus.
The fourth quarter was tough on Goldman's Wall Street business, from trading bonds, currencies and commodities to underwriting securities.
But 2010 ended on an upbeat note for conventional banks as the dead weight of bad loans became less of a burden. That meant they had to set aside less additional money to cover expected losses or could draw down funds previously put in reserve.
"The traditional banks were able to put up numbers that were in line with expectations and were favorably impacted by the economy," said analyst Gerard S. Cassidy of RBC Capital Markets. In contrast, "Goldman's not a bank," Cassidy said.
Christopher Whalen of Institutional Risk Analytics agreed, saying that commercial banks "live and die" based on their lending business. "Goldman's all about trading and investment banking," he said.
Goldman's setbacks involved areas that had been its strong suits.
Investment banking revenue for the quarter was down by 10 percent from a year earlier. In its underwriting business, the firm cited "a decline in client activity." Revenue from "institutional client services," which include helping clients trade stocks, bonds, currencies, and commodities, was down by 31 percent.