Goldman promises to cut costs to shore up profits

Tim Wallace
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GOLDMAN Sachs’ profits fell in the second quarter as the Eurozone crisis continued to drain confidence from the market and the bank lost money on an investment in a leading Chinese bank.

But the earnings figures were better than analysts expected because of a major cost-cutting programme and a large share buyback.

Revenues fell nine per cent on the year to $6.63bn (£4.24bn), while operating expenses fell eight per cent to $5.21bn.

That took profits down 11 per cent to $962m – slower than the 23 per cent fall recorded in the first quarter.

Shares closed up 0.3 per cent after the results.

The firm blamed the Eurozone crisis for much of the decline as cautious clients cut back on market activity.

Investment banking revenues fell 17 per cent to $1.2bn, with financial advisory revenues down 26 per cent on falling merger and acquisition activity, while equities underwriting revenues fell nine per cent.

Falling equities prices also hit earnings, led by a $194m loss on a stake in the Industrial Commercial Bank of China (ICBC).

But the firm is trimming costs to offset the declines. It shed an additional 100 staff in the second quarter, taking headcount to 32,300 – down nine per cent compared to a year ago.

That contributed to an overall nine per cent fall in compensation and benefits to $2.92bn in the quarter. Based on these figures, the bank would be in line to pay each employee around $225,000 for the first half, down five per cent on a year ago, and well below pre-crisis levels.

And Goldman expects to undertake a further $500m cost-cutting programme over the next six months.

Chief finance officer David Viniar revealed the bank expects its Basel III core tier one capital to stand at just under eight per cent by the end of this year and just under 10 per cent by the end of 2013 – down roughly one percentage point on previous forecasts.

Meanwhile a $1.5bn share buyback boosted earnings per share, which came in higher than hoped at $1.78.

Goldman’s average daily value at risk, a measure of the most money it could lose on 95 per cent of trading days, was $92m during the second quarter, the lowest in nearly six years.