Goldman Tops Profit View but Revenue Weak

NEW YORK (TheStreet) -- Goldman Sachs(GS) managed to top Wall Street's second-quarter profit view Tuesday but the bank fell short on the top line as all three of its main business units saw year-over-year revenue declines.

Excluding a total of $1.15 billion in expenses related to last week's settlement with the Securities and Exchange Commission and a U.K. bank payroll tax, Goldman earned $1.6 billion, or $2.75 a share, in the latest three months.

Revenue fell to $8.84 billion for the June period from $13.7 billion a year earlier, and $12.8 billion in the first quarter.

The average estimate of analysts polled by Thomson Reuters was for a profit of $2 per share on revenue of roughly $9 billion for the latest second quarter.

Including items, Goldman posted a profit of $613 million, or 78 cents a share, in the second quarter.

"The market environment became more difficult during the second quarter, and as a result, client activity across our businesses declined," said Lloyd Blankfein, Goldman's chairman and CEO, in a statement. "Looking ahead, we remain focused on helping our clients raise capital, manage risk and invest for the future, which are all important to economic growth."

Shares of Goldman were sliding 2.3% to $142.39 in premarket action, according to Yahoo Finance.

Analysts had anticipated the slowdown in trading revenue ahead of the report and brought down their estimates in the weeks leading up to the release of the results. Revenue from the bank's trading and principal investments business came in at $6.6 billion, down 39% from the year-ago period and 36% on a sequential basis. Fixed income, currency and commodities revenue totaled $4.4 billion, down from $7.4 billion in the first quarter. Goldman said FICC revenue was held back by "significantly lower results in credit products, interest rate products and currencies."

Goldman's investment banking business also saw a steep decline from prior performance levels. Its total revenue of $917 million was off 36% from the second quarter of last year, and 23% on a sequential basis. Revenue from both equity and debt underwriting activities was weak.

The bank's asset management and security services business held up best during the quarter. Revenue came in at $1.37 billion for the latest quarter, down 11% from last year but 2% higher than its first-quarter total.

Goldman also said its ratio of compensation and benefits to net revenue was 43% for the first half of 2010, down from 49% in the first half of 2009. The bank said its accrual for compensation and benefits for the second quarter was $3.8 billion.

Last Thursday, Goldman agreed to pay $550 million to settle civil fraud charges brought against it by the SEC. The charges, which were handed down in mid-April, alleged the company failed to properly disclose that hedge fund Paulson & Co. participated in selecting subprime mortgage securities for a synthetic CDO that Goldman was marketing and Paulson was shorting.

Prior to the SEC charges, Goldman shares were trading above $180. The stock closed Monday at $145.68, down 49 cents for the session. Year to date, the stock was off nearly 14% based on Monday's close.

-- Reported by Joseph Woelfel and Michael Baron in New York.

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