GOLDMAN Sachs saw earnings and revenues drop compared to last year, with the financial advisory division of its investment bank losing market share and its brokerage seeing revenues fall by more than a fifth.
Pre-tax profits fell by 22 per cent to $4bn (£2.45bn) despite a smaller fall of seven per cent in revenues, which were $11.9bn.
Profits were saved from a larger drop by the division in charge of propriety investment activities – Goldman’s investing and lending of its own money – which is still under a regulatory cloud as to its long-term future.
The bank’s “investing & lending” division, which was only recently introduced as a reporting category in an effort to improve transparency, saw revenues jump by 37 per cent year-on-year to $2.7bn for the quarter.
Operating costs rose slightly but expenses were worst hit by a $220m impairment charge on a sale of a mortgage servicing business, Litton Loan Servicing. The cost of pay and benefits declined five per cent to $5.3bn, a 44 per cent compensation-to-revenues ratio.
Goldman’s investment bank – its fee-based advisory and underwriting services on client actions like floats and M&A – has had a sluggish start to the year, underlined by its demotion in several market share league tables for the first-quarter of 2011.
The bank has missed out on some of the biggest deals so far this year, including AT&T USA’s bid for T-Mobile and Duke Energy’s merger with Progress Energy. Fees from advisory work dropped to $357m, 23 per cent down on last year.
But Goldman says that it has a larger backlog of advisory work in the pipeline that is likely to translate into better revenues during the next quarter.
Despite losing advisory share, the investment bank’s overall revenues were up by five per cent compared to last year to $1.3bn, largely due to a 32 per cent jump in revenues from debt underwriting, with the bank’s high yield division said to be seeing strong demand.
Goldman’s largest revenue source, executing trades for institutional clients, delivered what the bank called a “solid performance”.
Although its revenues were down 22 per cent on the equivalent quarter last year, they were 84 per cent up compared to the last quarter of 2010. They totalled $6.6bn.