Goldman Sachs Group gs, the larger of the two remaining major independent U.S. investment banks, on Tuesday reported its worst slump in profits since going public in 1999.
The world's largest investment bank reported third-quarter profit plunged 71% from the year-ago period, an almost unthinkable drop for a firm widely described as the smartest on Wall Street. Goldman's results reflect continuing damage from the ongoing credit crisis that has already vanquished three of its rivals.
Goldman and Morgan Stanley remain the only major independent investment banks on Wall Street after a major shake-up of the investment banking industry. Lehman Brothers Holdings filed for bankruptcy Monday after succumbing to distressed real estate holdings, while Bear Stearns and Merrill Lynch were swallowed by commercial banks in emergency sales.
After two years of record profits, Chairman and Chief Executive Lloyd Blankfein has been the only CEO to navigate his firm through the market dislocation without posting a loss or major write-downs. He said "this was a challenging quarter" marred by a "decrease in client activity and declining asset valuations."
That was reflected in the numbers. The New York-based investment bank posted a profit of $810 million, or $1.81 a share, after paying preferred dividends compared to $2.81 billion, or $6.13 a share, a year earlier. Revenue for the three months ended Aug. 29 skidded 51% to $6.04 billion from $12.3 billion a year ago.
The results still beat Wall Street projections for $1.71 a share, according to analysts polled by Thomson Reuters. Revenue fell short of the $6.23 billion expected by analysts.
The financial market turmoil is certainly one of the low points in Goldman's 139-year history. Though it has avoided the kind of bruising results turned in by many of its rivals, Goldman's shares are still down almost 50% from its 52-week high of $250.70.
On Tuesday, the stock tumbled $7.60, or 5.6%, to $127.90 in morning trading after sinking to a new 52-week low of $116 earlier in the session.
Goldman's performance from some of its renowned businesses reflected the market's dislocation since the credit crisis began one year ago. Investment banking revenue tumbled 40%, and trading and investments notched 67% lower.
The fall of Bear Stearns last March when it was sold to JPMorgan Chase helped Goldman's results during the third quarter. Goldman's prime brokerage, which trades securities for major institutional clients, reported a 20% surge in revenue. That helped lift Goldman's asset management and securities services unit's revenue higher by 4% from the year-ago period.
With Merrill Lynch agreeing to be acquired by Bank of America, more pressure has come on Goldman to make a similar deal. Many analysts believe stand-alone investment banks can balance volatile businesses like investment banking or trading with the relative stability of deposits held by retail banks.
Chief Financial Officer David Viniar rejected the idea that Goldman needs to combine with another bank to survive. He said there remains opportunity in the market, especially buying up distressed debt that has driven its rivals out of business.
He said the company is reducing risky positions, and expects Goldman's profit growth will rise or fall in tandem with the global economy. Further, it will also benefit from a financial landscape missing some longtime competitors.
"We're not happy about what happened," Viniar said during a conference call with reporters. "We feel for the people in these institutions. They were very good firms that made the same mistakes we did. They made bigger ones and got caught up in a terrible market."
However, he added that "while we have a lot of compassion, when there's less competition it is better for us. That sends more business our way, gives us pricing power, and we're seeing a little of that now."