Goldman profit hit by big legal provision, weak bond trading

Thu Jul 16, 2015 1:11pm EDT
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By Richa Naidu and Sweta Singh

(Reuters) - Goldman Sachs Group Inc reported its smallest quarterly profit in nearly four years on Thursday as it set aside more than $1 billion to cover potential mortgage settlements, and nervous investors pulled back from bond trading.

The bank set aside $1.45 billion for mortgage-related legal costs and regulatory matters, five times as much as in the second quarter last year.

Goldman is among the banks targeted by a federal-state working group to go after misconduct in the pooling and sale of mortgage securities in the run-up to the financial crisis.

JPMorgan Chase & Co has already agreed to settle for $13 billion, Bank of America Corp for $16.65 billion and Citigroup Inc for $7 billion.

Goldman and arch rival Morgan Stanley, which reports results on Monday, are next in line for potential settlements, according to a person familiar with the matter.

"That's one significant ... legacy item that we look forward to getting behind us," Goldman's chief financial officer, Harvey Schwartz, said on a conference call on Thursday.

The Wall Street bank's shares were down 1.3 percent at $210.16 in afternoon trading, even though the earnings - when excluding the provision - exceeded the average analyst estimate.

As with its competitors, Goldman's trading business - long a strength for the bank - came under pressure as worries about Greece and China made investors reluctant to trade.   Continued...

Traders work on the floor of the New York Stock Exchange near the Goldman Sachs stall July 16, 2010. REUTERS/Brendan McDermid