Joining other big banks that have reported third-quarter 2011 earnings in the last week, Goldman Sachs (GS) on Tuesday announced less-than-stellar results due to trading and investment bank weakness.
Goldman’s $428 million loss for Q3 represents only the second time that the investment bank has reported a quarterly loss since it went public in 1999. According to the bank’s report, the loss per share was $0.84 compared with earnings per share of $2.98 for Q3 2010 and $1.85 for the Q2 2011.
“It’s a horrible environment from an investment banking and trading standpoint,” said Tom Villalta, president and chief investment officer and portfolio manager of the Jones Villalta Opportunity Fund (JVOFX), in an interview with AdvisorOne.
Eyeing all the big banks that have reported thus far—Bank of America, Citigroup, JPMorgan and Wells Fargo in addition to Goldman—Villalta noted that investors are putting cash into their bank accounts as a safe haven, but business and consumer loans are still on hold as market uncertainty persists.
He pointed to the example of Wells Fargo, which saw 10% growth in deposits but only 1% growth in lending.
“It’s difficult for underwriters to find investments that make sense for the banks because we have a slow-growth environment where companies are unwilling to devote a lot of money to grow their businesses and consumer credit has gone down as individuals have right-sized their balance sheets,” Villalta said.
Goldman Chairman and CEO Lloyd Blankfein (left) attributed the bank’s loss to market volatility that ran rampant throughout the third quarter.
“CEO and investor confidence as well as asset prices across markets were lower in the third quarter given the uncertain macroeconomic and market conditions,” Blankfein said in a statement. “Our results were significantly impacted by the environment and we were disappointed to record a loss in the quarter.”
Net revenues in Goldman’s investment banking activities were $781 million, 33% lower than the third quarter a year ago and 46% lower than the second quarter of 2011. Net revenues in the firm’s Underwriting business were $258 million, 61% lower than the third quarter of 2010.