You've heard the "new normal" to be expected in the US economy. You've seen the enormous debt burden for the State and Federal governments. You've heard of the EU debt crisis.
But have you understood the shifting economic crisis over the past 30 years or more? Compare the rapid growth and collapse of various markets from US Savings & Loan Debacle of the late 1980's, to the USSR collapse in the early 1990's, to the Asian Tigers of the 1990's, to the Argentine economic collapse in the late 1990's, the Dot com crash of the late 1990's, all showing markets expanding at a rapid pace as capital is drawn to the next big thing, and finally exploding as the bear market gets a flash of realism and all foreign investors flee, leaving the local markets in shambles.
9/11 seems to have marked a comeback as the US government went into massive debt and a spending spree to fund 2 wars in Iraq and Afghanistan and a global war on terror. The ancillary markets began to recover and domestically, Americans focused on record low interest rates, a stock market boom, and a housing boom.
The financial collapse of 2008 has started the down cycle again and despite record spending by the US government and a money printing binge by the Federal Reserve, the money is concentrated in the hands of a few (the uber wealthy 1%) so a recovery is unlikely since the masses (the middle class) do not have money to spend.
Each economic crisis leaves the middle class and the local economy completely weakened, dependent, and needy like a host following a viral or a vampire attack.
Goldman Sachs Plans Job Cuts as Debt Trading Misses Estimates
Goldman Sachs Group Inc. (GS), the U.S.
bank that makes most of its money from trading, said it will cut
about 1,000 jobs after a plunge in fixed-income revenue that was
bigger than analysts estimated.
Second-quarter fees from trading debt, currencies and
commodities tumbled 63 percent from the previous quarter, more
than twice the drop at other major U.S. banks. Net income was
$1.09 billion, or $1.85 per share, the New York-based company
said today in a statement, falling short of the $2.30 per-share
average estimate of 23 analysts surveyed by Bloomberg.
Led by Chairman and Chief Executive Officer Lloyd C. Blankfein, Goldman Sachs last year ceded its dominant position
among fixed-income traders to larger rival JPMorgan Chase & Co. (JPM)
In the second quarter of 2011, Goldman Sachs cut risk-taking to
the lowest level since 2006. Debt-trading revenue of $1.6
billion dropped below JPMorgan Chase & Co.’s $4.28 billion,
Citigroup Inc.’s $3.03 billion and Bank of America Corp.’s $2.7
billion.
“It’s clear that Goldman underperformed many of its
peers,” said Richard Staite, an analyst at Atlantic Equities
LLP in London, who has a “neutral” rating on the stock. “It
seems to have prompted them into a cost-saving initiative.”
The firm identified annual cost savings of $1.2 billion
that will include about 1,000 job cuts this year, Chief
Financial Officer David A. Viniar told analysts during a
conference call after earnings were released. Goldman Sachs
employed 35,500 people at the end of June, up 100 people from
the prior quarter.
‘Foreseeable Future’
“It looks like the environment’s going to be somewhat
slower for the foreseeable future and so we decided it made
sense at this point to cut some level of expenses to be more
efficient,” said Viniar, who turned 56 years old today.
Job cuts will be “broad based” and are likely to affect
both junior and senior employees, he said, adding that Goldman
Sachs’s plans to grow in countries such as China, India and
Brazil, where the firm has been doing the most rapid hiring,
won’t be affected.
Operating expenses in the second quarter totaled $5.67
billion, down 28 percent from $7.85 billion in the first quarter
and 23 percent below the $7.39 billion in the second quarter of
2010. Compensation expenses fell 39 percent from the first
quarter to $3.2 billion.
Goldman Sachs fell $2.73, or 2.1 percent, to $126.61 in New
York Stock Exchange composite trading at 2:04 p.m. The stock, at
its lowest level since April 2009, has dropped about 25 percent
this year.
Net income climbed 77 percent from the same period a year
earlier, and earnings fell 38 percent if one-time costs are
excluded from the 2010 results. Last year’s second-quarter
earnings were reduced by a $550 million settlement with the
Securities and Exchange Commission and a $600 million expense to
pay a U.K. tax on employee bonuses.
Analysts in the Bloomberg survey lowered their earnings
estimates by an average of $1.09 per share in the past four
weeks.
Revenue fell 39 percent to $7.28 billion from $11.9 billion
in the first quarter and $8.84 billion a year earlier. The
figure fell short of the average $8.2 billion estimate of 15
analysts surveyed by Bloomberg. Return on equity, a measure of
how well the firm reinvests shareholder funds, decreased to 6.1
percent from 12.2 percent in the first quarter.
No Rebound
“We’ve had four relatively weak quarters in a row, and I
think it’s now quite clear that the difficult environment is
going to be continued throughout the remainder of this year,”
Atlantic Equities’ Staite said. “I’d be pretty surprised if we
see a marked rebound any time in the near term.”
Overall revenue from trading, run since February 2008 by
Edward K. Eisler, David B. Heller, Pablo J. Salame and Harvey M. Schwartz, fell 47 percent to $3.52 billion from $6.65 billion in
the first quarter and was down 29 percent from $4.98 billion in
the second quarter of 2010.
“Certain of our businesses had disappointing results as we
reduced our market risk in response to attempting to manage
fluctuations in prices and market liquidity,” Blankfein, 56,
said in the statement.
Value at risk, a gauge of how much the firm could lose in a
single day of trading, fell for the eighth consecutive quarter,
to $101 million. The figure was the lowest since the third
quarter of 2006. The firm reduced the amount at risk to equity
prices, currencies and interest rates, while the risk in
commodity prices jumped.
‘Not as Effective’
“During the quarter we were not as effective at navigating
intra-quarter swings in market prices and liquidity as we have
been historically,” Viniar told analysts. “We generated lower
revenues from managing client-originated market-making
inventory, particularly in our largely U.S.-based mortgages
business and our global commodities and credit business.”
Goldman Sachs’s equity-trading revenue declined 17 percent
to $1.92 billion from $2.32 billion in the prior quarter and
rose 19 percent from $1.61 billion a year earlier. That compared
with $1.22 billion of second-quarter equity-trading revenue at
JPMorgan and $812 million at Citigroup. Analysts including as
Roger Freeman at Barclays Capital expected Goldman Sachs’s
equities revenue to be about $2 billion.
Revenue from investment banking, overseen globally by
Richard J. Gnodde, David M. Solomon and John S. Weinberg,
advanced to $1.45 billion in the quarter from $1.27 billion in
the first quarter and $941 million in the second quarter of
2010. By comparison, JPMorgan’s investment-banking fees totaled
$1.92 billion in the quarter and Citigroup reaped $1.09 billion.
Investment Banking
Goldman Sachs’s investment-banking revenue exceeded
estimates from analysts at Atlantic Equities, Barclays Capital
and ISI Group, who expected revenue in the range of $1.2 billion
to $1.3 billion.
Fees from takeover advice, a business led by Gene T. Sykes
and Yoel Zaoui, increased to $637 million from $357 million in
the first quarter and from $471 million a year earlier. The firm
ranks first among advisers on mergers and acquisitions announced
so far this year, according to Bloomberg data.
The firm also ranks first year-to-date in managing global
equity sales and initial public offerings, the data show.
Revenue from equity underwriting, overseen by London-based
Matthew Westerman, fell to $378 million from $426 million in the
first quarter, while debt underwriting revenue dropped to $433
million from $486 million in the prior three months.
Investing and lending, the segment in which Goldman Sachs
books gains or losses from the firm’s own stakes in companies
such as Industrial & Commercial Bank of China (1398) Ltd. and other
assets, made $1.04 billion in the period, compared with $2.71
billion of gains in the first quarter and $1.79 billion in the
second quarter of 2010.
Revenue from investing and lending was more than double
what was expected by analysts at Atlantic Equities, Barclays
Capital and ISI Group. Their estimates ranged from $210 million
to $411 million.
“People regard those revenues as pretty volatile and I
don’t think people will take any comfort from a better
performance” in that business, said Atlantic Equities’ Staite.
Revenue from investment management, the business run by
Edward C. Forst and Timothy O’Neill, was unchanged from the
first quarter at $1.27 billion and up from $1.13 billion in the
second quarter of last year. Assets under management increased
to $844 billion at the end of June from $840 billion at the end
of March.
To contact the reporter on this story:
Christine Harper in New York at
charper@bloomberg.net
To contact the editor responsible for this story:
David Scheer at dscheer@bloomberg.net.
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