Goldman earnings plunge 70% in third quarter amid credit crunch

New York: Goldman Sachs Group Inc said third-quarter earnings plunged 70 per cent as one of the market's worst slumps ever sapped revenue in almost every business while fuelling investment and credit losses.

The largest US investment bank reported net income of $845 million, or $1.81 a share, for the quarter ended August 29, down from $2.85 billion, or $6.13 a share, a year earlier. Net revenue fell by half to $6.04 billion from $12.3 billion.

"To think that any financial firm can avoid being scathed by this meltdown is naive," said Walter Todd, portfolio manager at Greenwood Capital Associates in Greenwood, South Carolina.

The earnings beat analysts' sharply reduced expectations of $1.75 a share, but revenue fell short of the consensus forecast of $6.3 billion.

In trading before the bell, Goldman shares fell more than five per cent to $128.13 a share, their lowest level in two an a half years.

The results come as the year-long credit crunch builds up steam. Six months after Bear Stearns collapsed and was acquired by JPMorgan Chase, Lehman Brothers Holdings Inc on Monday filed for bankruptcy protection while Merrill Lynch & Co rushed into the arms of Bank of America Corp.

Dearth of deals

As expected, Goldman Sachs investment banking revenue dropped 40 per cent amid a dearth of deal activity. Fixed-income trading revenue plummeted by two-thirds, reflecting weak credit and mortgage trading results, while equities trading revenue fell by half.

The quarter also included $1.1 billion of losses on financing for junk-rated companies, residential mortgages and commercial mortgages.

"This was a challenging quarter as we saw a marked decrease in client activity and declining asset valuations," Lloyd Blankfein, Goldman's chief executive, said in a statement.

Moreover, Goldman, the most aggressive investment bank in betting its own money, recorded a net loss of $453 million from principal investments. Asset management revenue fell six per cent, reflecting lower fees, falling market prices and a $7 billion net outflow of assets.

Yet Goldman managed to beat earnings expectations, however reduced, and posted a profit in one of the toughest markets in a decade. "This is a heroic effort," said Mike Holland, chairman of investment firm Holland & Co in New York. "I think we have probably not seen a more challenging environment than the one that we are going through right now."

Lehman last week reported a third-quarter loss of $3.9 billion, fuelled by nearly $8 billion in writedowns and declines in banking, underwriting and trading revenue. The loss, and worries that it had failed to raise enough capital, forced the firm into bankruptcy.