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| Goldman Sachs profits down by half on weak debt trading | Goldman Sachs profits down by half on weak debt trading |
| (40 minutes later) | |
| Wall Street firm Goldman Sachs has reported net income of $2.39bn (£1.49bn) for the fourth quarter of 2010, down 53% from a year ago. | |
| The poor result was as expected, and follows similarly weak numbers from rival Citigroup on Tuesday. | The poor result was as expected, and follows similarly weak numbers from rival Citigroup on Tuesday. |
| As at Citigroup, the investment bank's performance was dragged down by weak business at its fixed income division. | As at Citigroup, the investment bank's performance was dragged down by weak business at its fixed income division. |
| The division is responsible for trading bonds, currencies, commodities and credit derivatives among others. | The division is responsible for trading bonds, currencies, commodities and credit derivatives among others. |
| Net earnings for the whole of 2010 totalled £8.4bn, down 38% on 2009, according to the broker-dealer's financial statement. | Net earnings for the whole of 2010 totalled £8.4bn, down 38% on 2009, according to the broker-dealer's financial statement. |
| This was calculated after the Wall Street firm deducted the cost of $15.4bn "compensation and benefits", which were down only 5% on the previous year. | This was calculated after the Wall Street firm deducted the cost of $15.4bn "compensation and benefits", which were down only 5% on the previous year. |
| The figures mean that average pay per employee works out at $431,000, although the company's top earners are likely to be paid several times this amount. | The figures mean that average pay per employee works out at $431,000, although the company's top earners are likely to be paid several times this amount. |
| In total. the company awarded 39% of its $39bn net revenues for the year to its employees, leaving only a 21% share attributable to shareholders as net earnings. | In total. the company awarded 39% of its $39bn net revenues for the year to its employees, leaving only a 21% share attributable to shareholders as net earnings. |
| 'Low client activity' | 'Low client activity' |
| The fourth quarter figures rounded off a year that has become progressively more difficult for Goldman. | The fourth quarter figures rounded off a year that has become progressively more difficult for Goldman. |
| At $3.79, earnings per share for the last three months slightly beat analysts' expectations of $3.76. | At $3.79, earnings per share for the last three months slightly beat analysts' expectations of $3.76. |
| However, net revenues - a better measure of overall business levels - undershot expectations, down 10% from a year ago at $8.64bn, versus an expected $9bn. | However, net revenues - a better measure of overall business levels - undershot expectations, down 10% from a year ago at $8.64bn, versus an expected $9bn. |
| "Looking ahead, we are seeing signs of growth and more economic activity," said chairman and chief executive, Lloyd Blankfein. | "Looking ahead, we are seeing signs of growth and more economic activity," said chairman and chief executive, Lloyd Blankfein. |
| The company's share price dropped 3.1% in informal electronic trading prior to the opening bell at the New York Stock Exchange. | |
| "It's confirming that [the fourth quarter] was difficult," said Simon Maughan, analyst at MF Global in London. "If Goldman Sachs can't show a strong performance, then good luck to anyone else trying to." | |
| However, Mr Maughan dismissed the relevance of the last three months of the year - which comes as traders tend to wind down activity ahead of the year-end - as a performance indicator. | |
| "The outlook has already improved from what is turning out to be a miserable quarter," he said. | |
| Trading woes | |
| Business at the company's fixed income group was particularly lacklustre, reporting net revenues down 48% on a year earlier, and follows a similarly dismal third quarter for the group. | Business at the company's fixed income group was particularly lacklustre, reporting net revenues down 48% on a year earlier, and follows a similarly dismal third quarter for the group. |
| Goldman blamed "low client activity levels" for the poor performance. | Goldman blamed "low client activity levels" for the poor performance. |
| The firm blamed the same reason for a 10% fall in net revenues at its "investment banking" wing, which provides financial advice on mergers and acquisitions, and arranges new bond and share issues for clients. | The firm blamed the same reason for a 10% fall in net revenues at its "investment banking" wing, which provides financial advice on mergers and acquisitions, and arranges new bond and share issues for clients. |
| "Trading for their own account and investment banking are a big piece of what they do," said Malcolm Polley, chief investment officer at Stewart Capital Advisors in Pennsylvania. | |
| One factor likely to have hurt the firm's fixed income business was a sharp and sudden drop in the value of US government bonds in December. | |
| The sell-off reflected growing expectations that the Federal Reserve will succeed in raising the near-zero inflation rate in the US. | |
| But as markets demanded a higher return from government bonds to compensate for higher inflation, this also fed into a sudden increase in the cost of borrowing for Goldman Sachs and its clients. |