Goldman Sachs Group might not be so golden this quarter.
The Wall Street investment bank has hardly emerged unscathed from the credit crunch. But compared with Lehman Brothers Holdings and Merrill Lynch, Goldman has made it look easy.
Not so this quarter. When the firm reports earnings on Sept. 16, it won't be pretty.
There is no obvious sign of big trading losses. But the third quarter wasn't kind to most of Goldman's businesses, as trading activity and investment-banking business swooned.
In recent weeks analysts have cut earnings estimates to $2.13 a share, or $953 million, from $3.29 a share Aug. 15, according to Thomson Reuters. That probably remains too high. The few analysts at $1.50 a share may look smartest. Goldman earned $6.13 a share, or $2.85 billion, in the year-earlier period.
The main culprit: Trading volumes across certain products dropped drastically in August. For example, monthly U.S. equity volumes fell 30% year-on-year, according to NYSE Euronext. This drop will ripple through a host of Goldman's operations. Less client trading will cut into profitable businesses such as prime brokerage. This is all likely to hit the firm's principal and trading-business line, which accounted for 59% of revenue in the second quarter.
Investment banking, another profitable business, also has been weak. In August, for example, Goldman's completed mergers-and-acquisitions volume fell almost 60% globally from 2007, according to Thomson Reuters.
And there are likely to be write-downs from the firm's $17 billion commercial real-estate portfolio.
Investors are in for a shock. Goldman is mortal after all.
Susanne Craig
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