Goldman Sachs profit hit by weak fixed-income trading

Fri Jan 16, 2015 1:03pm EST
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By Anil D'Silva and Lauren Tara LaCapra

(Reuters) - Goldman Sachs Group Inc (GS.N: Quote) reported a 7 percent drop in fourth-quarter profit as sharp market moves in December hit its bond-trading business.

Fixed-income trading, long a strength for the bank, came under pressure last year due to stricter capital rules in the aftermath of the financial crisis and relatively calm markets that discouraged clients from trading.

Just when it seemed things were picking up, erratic moves in the market last month, caused by factors ranging from plunging oil prices to worries about Greece, spooked investors again.

"Volatility in absence of liquidity" hurt Goldman and other big banks in the quarter, Harvey Schwartz, Goldman's chief financial officer, said on a call with analysts.

Goldman's revenue from trading fixed-income securities, currencies and commodities (FICC) fell 19 percent, excluding gains from repayment of debt and the sale of most of its European insurance business in 2013.

Overall, FICC revenue fell 29 percent to $1.22 billion, mainly due to a weaker performance in mortgages and credit products such as corporate bonds. This was partially offset by higher revenue from trading commodities and currencies.

A writedown on a loan to troubled Portuguese lender Banco Espirito Santo also hurt FICC trading, as Reuters reported earlier this week.

The business, which once contributed about 40 percent of Goldman's revenue, has been on a decline since 2009 as new rules also discourage banks from trading on their own account and it accounted for only about 16 percent of revenue in the quarter.   Continued...

A view of the Goldman Sachs stall on the floor of the New York Stock Exchange July 16, 2013. REUTERS/Brendan McDermid