Completing my trifecta of investment banks this week, we now turn to the earnings of Goldman Sachs
Revenue for the quarter dropped about 13% and net income skidded even further -- dropping 27% from the year-ago level. Both figures missed analyst guesses for the quarter.
Investment banking revenue dropped 14% as the company saw a big dip in its financial advisory services business. While underwriting was down only a modest 3%, the financial advisory business posted a 25% drop in its revenue.
Trading was even worse. Trading is a major source of income for most of the major banks, but Goldman saw revenue from trading drop 22% from last year and 36% from the prior quarter. Equities did OK for the quarter, but fixed income, currency, and commodity trading showed a 20% year-over-year decline in revenue.
Interestingly, Goldman put less of its own capital at risk in trading during the second quarter. Value-at-risk declined to an average of $60 million per day in the second quarter as compared with $65 million in the prior quarter and $69 million in the year-ago quarter. In simpler terms, value-at-risk is a measurement of how much the company could lose if all of its positions went against it in a single day. While Goldman has increased its exposure to commodities and maintained its exposure to currencies (on a year-over-year basis), it has significantly curtailed its equity exposure.
This tough quarter aside, I still like Goldman Sachs as a company. It is a leader in global M&A and underwriting and has always managed to attract and retain high-caliber talent. Having worked at an investment bank, I'm not overly fond of the idea of owning stock in the industry. That said, Goldman will likely continue to be seen as among the best of the best in that business.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).