Goldman Sachs fourth-quarter profit hit by lower bond trading revenue

Thu Jan 16, 2014 12:05pm EST
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By Anil D'Silva and Lauren Tara LaCapra

(Reuters) - Goldman Sachs Group Inc reported a 21 percent drop in quarterly profit on Thursday as revenue from fixed-income trading fell in what Chief Executive Lloyd C. Blankfein described as "a somewhat challenging environment."

The bank's bond trading revenue slid 11 percent, adjusted for an accounting charge, and was greater than those of competitors that have already posted fourth-quarter results. It is also a blow to a bank that counts bond trading, including fixed income, currency, and commodities, as one of its biggest businesses.

While Goldman is still a big player in bond markets, fixed-income trading revenue fell to 25.3 percent of total revenue in 2013 from 48 percent at its peak in 2009, including accounting charges.

The bond market began to soften in the middle of last year as investors prepared for the U.S. Federal Reserve to scale back on its bond-buying stimulus, and longer-term yields started rising. Trading income across Wall Street has been hurt by the move.

Even accounting for the difficult environment, Goldman's bond-trading results lagged peers. Bank of America Corp's fixed-income trading revenue rose 16 percent in the fourth quarter to a level 10 percent higher than Goldman's.

The business has also been under pressure from new financial regulations, forcing many banks to re-evaluate which of the various fixed income, currencies and commodities units they should keep.

On a conference call with analysts, Goldman executives said there appeared to be "excess capacity" across the industry in fixed-income staffing. They added that the bank was well-positioned to benefit if any rivals exit businesses.

They also said there was no change in the bank's strategy in commodities, as others such as JPMorgan Chase & Co and Morgan Stanley pull back.   Continued...

The Goldman Sachs logo is displayed on a post above the floor of the New York Stock Exchange, September 11, 2013. REUTERS/Lucas Jackson