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Goldman profit falls 70%, rules out bank deal (with video)
Greg Morcroft, MarketWatch
NEW YORK (MarketWatch) -- Goldman Sachs added to the mounting sense of gloom on Wall Street Tuesday when it reported that third-quarter profit plunged 70% from a year ago as business slowed across the board and the firm posted more than $800 million in losses from sour residential and commercial real estate assets.
The company also shot down speculation it might serve help bailout competitors, with Chief Financial Officer David Viniar saying it has no plans to merge or buy a bank or securities firm to expand its funding sources.
"This was a challenging quarter as we saw a marked decrease in client activity and declining asset valuations," Lloyd Blankfein, Goldman CEO, said in a press release. See MarketWatch First Take commentary.
Goldman shares fell as much as 11% in early trading and were last down about 8% at $127.
Goldman's weak earnings come amid an unprecedented meltdown on Wall Street in the last several days that has claimed rivals Lehman Brothers (LEH
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LEH) through bankruptcy and Merrill Lynch (MER
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MER) through a fire sale to Bank of America (BAC
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BAC) . Morgan Stanley & Co. posts its earnings on Wednesday and they are also expected to be weak.
Lehman Brothers Holdings Inc
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Merrill Lynch & Co., Inc
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bank of america corporation com
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The meltdown has caused some experts to question the entire brokerage-business model this week, arguing that firms may be better off as part of a larger commercial bank with access to deposits. See full story.
Video: Bove's Advice To Goldman, Morgan Stanley
Remaining top brokerage firms Goldman Sachs and Morgan Stanley will need to look at potential commercial bank partners to get steady funding, according to Dick Bove, managing director of Ladenburg Thalmann. (Sept. 16)
Goldman (GS
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GS) said it earned $845 million, or $1.81 a share in the quarter, compared to $2.09 billion, or $4.58 a share a year ago.
Goldman Sachs Group, Inc
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Twenty analysts polled by FactSet expected the company to earn $1.99 a share. Total revenue at the firm fell 43%, to $13.63 billion from $23.8 billion a year ago.
As bad as they were, Goldman's earnings were favorable compared to Lehman's results last week.
Lehman reported a fiscal third-quarter net loss of almost $4 billion after more than $5 billion of new write-downs, mostly on soured mortgage exposures. By Monday morning, the 158-year old firm had filed for bankruptcy.
Morgan Stanley (MS
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MS) , the other remaining large independent brokerage firm, is scheduled to report earnings Wednesday. It is forecast to make 80 cents a share, according to 17 analysts in a FactSet poll.
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Goldman and Morgan Stanley, the two largest U.S. brokerage firms, have weathered the credit crisis better than Lehman and Merrill Lynch (MER
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MER) .
Merrill Lynch & Co., Inc
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Business falls sharply as clients pull in horns
Goldman said its fiscal third-quarter investment-banking net revenue fell 40% from a year earlier to $1.29 billion amid the upheaval in global credit markets.
Net revenue in trading and principal investments fell 67% to $2.7 billion, according to Goldman's quarterly earnings report.
Also, net revenue in fixed-income, currency and commodities dropped 67% from the year-ago quarter "primarily reflecting particularly weak results in credit products and mortgages, which were adversely affected by broad-based declines in asset values," the company said.
The firm also said it saw net losses of about $500 million on residential mortgage loans and securities in the third quarter. Meanwhile, it lost about $325 million for the quarter on its exposure to commercial mortgages, according to the earnings statement. 
Greg Morcroft is MarketWatch's financial editor in New York.
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