Goldman Sachs reported on Thursday that it had nearly quadrupled its profits in the third quarter compared with a year ago, driven by a jump in trading revenues and strong returns on its own corporate investments.
Meanwhile, Citigroup defied expectations of a third-quarter loss, reporting profits of $101m on the strength of its customer deposits. Goldman’s results beat the expectations of Wall Street analysts, who had anticipated a surge in fixed-income underwriting opportunities, and followed its record performance in the second quarter when the U.S. bank reported earnings of $3.44bn. However, Goldman’s shares fell by 3.12 percent to $186.28 in pre-market trading. Net income was $3.19bn, or $5.25 a share, compared with $845m, or $1.81, in the same quarter a year ago. Analysts were anticipating profits of $4.24. Revenues surged by 105 percent to $12.37bn, also exceeding estimates, fuelled by a 90 percent gain in trading and principal investments. The investment banking business saw revenues fall by 24 percent to $3.2bn “Although the world continues to face serious economic challenges, we are seeing improving conditions and evidence of stabilisation, even growth, across a number of sectors,” Lloyd Blankfein, Goldman Sachs’ chief executive, said in a statement.
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“Because the job market, and growth more generally, remain under stress, we continue to be focused on actively helping our clients in order to promote greater economic activity.” The bank, which paid back $10bn in taxpayer funds to the US government in June, has been one of the strongest on Wall Street. However, it has earned increasing criticism for its generous pay packages and close government ties. Goldman said on Thursday it had set aside $5.35bn for compensation in the third quarter, which was higher than a year ago, thanks to stronger revenues. Last month Mr Blankfein, speaking at a conference in Germany, acknowledged that the furore over bankers’ pay was “understandable and appropriate”. He was also critical of the complex financial instruments which helped foment the financial crisis, arguing that they had “outstripped” their utility. Goldman continued to shore up its financial position in the third quarter, raising its tier 1 capital ratio — a key measure of balance sheet strength – to 14.5 percent from 13.8 percent in the second quarter. At Citigroup, net income of $101m translated into a loss of 27 cents a share. That beat estimates of a loss of 38 cents and compared favourably with its $2.8bn loss from the third quarter of 2008. The earnings per share loss, in spite of the positive net income, was largely due to previously announced exchange offers which knocked $3.1bn from income available to common shareholders. “With strong capital, strong liquidity and a strong franchise, we are looking forward.,” Vikram Pandit, Citi’s chief executive, said in a statement. “We continue to execute steadily against our plan, and sustainable profitability remains our primary goal in the near term. While consumer credit trends are improving in international markets, the U.S. consumer credit environment remains challenging.” Citigroup’s revenues of $20.4bn also exceeded expectations and represented a 25 per cent increase from a year ago when the bank generated $16.3bn in revenues. The bank continued to suffer from high credit losses, which it said remained “elevated” at $8bn. Its loan loss reserve was also depleted, falling to $802m from $3.9bn in the second quarter. The bank, which during the worst of the financial crisis was forced to hand a 34 per cent stake over to the US government and take $45bn in federal aid, continues to remake itself. Last week, facing pressure over the compensation of its star trader Andrew Hall, Citigroup sold its controversial commodity unit Phibro to Occidental Petroleum for a cut price. “Looking forward, we will continue to focus on sustainable profitability and growth, repaying Tarp and helping support America’s economic recovery,” Mr Pandit said. Citigroup has also moved to diversify its business by making a stronger push overseas. On Monday the bank named two long-term insiders as co-heads of banking for Europe, the Middle East and Africa, to replace a veteran dealmaker who stepped down last month. The following day Citi said it would become the first US financial institution to open a retail operation in Vietnam in a move to target consumers in one of Asia’s fastest growing economies. Citigroup’s stock price was off by 3.4 per cent to $4.83 in pre-market trading on Thursday. The Goldman Sachs and Citigroup results followed a strong performance from rival JPMorgan, which on Wednesday beat the most bullish expectations when it reported its biggest profit in more than two years, helping to lift the Dow above the 10,000 mark.