Goldman Sachs Group Inc. reported a second-quarter profit of $1.05 billion, significantly lower than expectations, as difficult markets led the Wall Street bank to reduce risk taking to the lowest levels in five years.
The per-share earnings of $1.85 were 42 cents below the consensus expectations of analysts, only the fifth profit miss in its 12 years as a publicly traded company.
"Certain of our businesses had disappointing results as we reduced our market risk in response to attempting to manage fluctuations in prices and market liquidity," said Chief Executive Lloyd Blankfein in a statement.
Goldman also disclosed plans to cut about 1,000 jobs as part of its cost-cutting measures, said the firm's chief financial officer David Viniar on the company's conference call to discuss its second-quarter earnings .
The job cuts will be part of the securities firm's plans to reduce its compensation and non-compensation expenses by $1.2 billion of the course of 2011, announced in its second-quarter earnings filing.
"We think that given the regulatory uncertainties and economic uncertainties…it looks like the environment will be slower for the foreseeable future so it made sense to cut some level of expenses," said Mr. Viniar on the call.
The 1,000- job cuts would be atop its annual culling of 5% of its staff, aimed at letting go the securities firm's lowest performers.
Mr. Viniar said the job cuts will be broad based, and take place across many of its businesses, but would likely not take place in many growth markets, where the firm is making a strategic push to grow its footprint.
From last year's second quarter, profit more than doubled; last year's quarter included big one-time charges.
Revenue told the story in this year's second quarter. Net revenue fell 18% from last year and 39% from this year's first quarter to $7.2 billion on weakness in trading, which has long been Goldman's biggest profit generator.
Net revenue from institutional client services, which includes trading, fell 29% from last year and 47% from the first quarter to $3.5 billion. Within that sector, revenue from fixed income, currency and commodities trading fell 53% from last year and 63% from the first quarter to $1.6 billion.
Value-at-risk, which calculates the amount of money Goldman had on the line at its trading desks on any given day, fell to $101 million, the lowest since the third quarter of 2006.
On the conference call, Mr. Viniar admitted the firm underperformed in trading and said the decision to reduce risk might have been a mistake. "Maybe we made a bad decision in taking too little risk. I don't know," he said. "But I don't want to sugarcoat things. I think we underperformed during the quarter."
He said political conditions abroad made the degree of market uncertainty hard to analyze and that Goldman didn't handle its market-making inventory "as well as we have in the past."
As a counterweight to trading, investment-banking net revenue rose 54% from last year to $1.4 billion, with increases across stock and bond underwriting and corporate advisory business.
In June, Goldman announced the sale of its Litton Loan Servicing unit to Ocwen Financial Corp. for $264 million, putting an end to the company's foray into subprime mortgage loan servicing. Goldman said at the time it didn't expect the sale to materially impact second-quarter earnings.
The per-share earnings of $1.85 were 42 cents below the consensus expectations of analysts, only the fifth profit miss in its 12 years as a publicly traded company.
"Certain of our businesses had disappointing results as we reduced our market risk in response to attempting to manage fluctuations in prices and market liquidity," said Chief Executive Lloyd Blankfein in a statement.
Goldman also disclosed plans to cut about 1,000 jobs as part of its cost-cutting measures, said the firm's chief financial officer David Viniar on the company's conference call to discuss its second-quarter earnings .
The job cuts will be part of the securities firm's plans to reduce its compensation and non-compensation expenses by $1.2 billion of the course of 2011, announced in its second-quarter earnings filing.
"We think that given the regulatory uncertainties and economic uncertainties…it looks like the environment will be slower for the foreseeable future so it made sense to cut some level of expenses," said Mr. Viniar on the call.
The 1,000- job cuts would be atop its annual culling of 5% of its staff, aimed at letting go the securities firm's lowest performers.
Mr. Viniar said the job cuts will be broad based, and take place across many of its businesses, but would likely not take place in many growth markets, where the firm is making a strategic push to grow its footprint.
From last year's second quarter, profit more than doubled; last year's quarter included big one-time charges.
Net revenue from institutional client services, which includes trading, fell 29% from last year and 47% from the first quarter to $3.5 billion. Within that sector, revenue from fixed income, currency and commodities trading fell 53% from last year and 63% from the first quarter to $1.6 billion.
Value-at-risk, which calculates the amount of money Goldman had on the line at its trading desks on any given day, fell to $101 million, the lowest since the third quarter of 2006.
On the conference call, Mr. Viniar admitted the firm underperformed in trading and said the decision to reduce risk might have been a mistake. "Maybe we made a bad decision in taking too little risk. I don't know," he said. "But I don't want to sugarcoat things. I think we underperformed during the quarter."
He said political conditions abroad made the degree of market uncertainty hard to analyze and that Goldman didn't handle its market-making inventory "as well as we have in the past."
As a counterweight to trading, investment-banking net revenue rose 54% from last year to $1.4 billion, with increases across stock and bond underwriting and corporate advisory business.
In June, Goldman announced the sale of its Litton Loan Servicing unit to Ocwen Financial Corp. for $264 million, putting an end to the company's foray into subprime mortgage loan servicing. Goldman said at the time it didn't expect the sale to materially impact second-quarter earnings.
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