Goldman hit by weak fixed-income, investment banking revenue

[January 16, 2015]  By Anil D'Silva and Lauren Tara LaCapra

(Reuters) - Goldman Sachs Group Inc reported a 7 percent drop in quarterly profit as investment banking revenue slid and an unexpected bout of market volatility in December hit its bond trading business.

Revenue from trading fixed income securities, currencies and commodities (FICC) - long a strength for Goldman - fell 29 percent to $1.22 billion in the fourth quartet, mainly due to low levels of activity in debt products and mortgages.

The decline was partially offset by significantly higher net revenue from trading commodities and currencies.

Excluding gains related to repayment of debt and the sale of a majority stake in the firm's European insurance business in 2013, revenue in the FICC division fell 19 percent.

Investment banking revenue fell 16 percent to $1.44 billion, due to lower net revenue from both equity and debt underwriting, which Goldman blamed on a decrease in industry-wide activity.

Goldman's net income fell to $2.17 billion, or $4.38 per share, in the fourth quarter from $2.33 billion, or 4.60 per share, a year earlier.
 

Analysts had expected earnings of $4.32 per share, according to Thomson Reuters I/B/E/S.

Goldman Sachs shares were down 1.5 percent before the bell.

"Looking ahead, we see evidence of a continued pick up in momentum for the global economy that will improve the opportunity set for 2015," Chief Executive Lloyd Blankfein said in a statement.

Fixed-income trading has come under pressure in recent quarters due to weak client trading volumes and stricter capital rules in the aftermath of the financial crisis.

A surprising burst of volatility in December exacerbated the problem by discouraging many investors from taking positions.

Barclays analysts had expected Goldman to report a 13 percent decline in FICC revenue.

JPMorgan Chase & Co's FICC revenue fell 14 percent in the quarter, Citigroup Inc's 16 percent and Bank of America Corp's 30 percent.

Of the big U.S. banks reporting this week, only Wells Fargo & Co managed a rise in profit, largely because it is more focused on retail and commercial banking.

Revenue in Goldman's investing and lending division, which puts the bank's own capital to work by investing in companies and lending to them, fell 26 percent to $1.53 billion.

Goldman used 36.8 percent of its revenue for compensation last year, slightly down from 2013. Many analysts had expected the compensation ratio to be flat to slightly lower as the bank tried to make up for weak revenue.

(Reporting by Anil D'Silva in Bangalore; Editing by Ted Kerr)

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