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Banking

Goldman Sachs posts Q3 loss

The investment bank blames low CEO and investor confidence, as well as asset prices for its net loss and lower net revenues across major divisions.

Goldman Sachs has posted a third-quarter loss of $393 million, equivalent to 84 cents per share – marking its second only quarterly loss as a public company.

It cited lower CEO and investor confidence, as well as asset prices for its negative earnings results.

“CEO and investor confidence, as well as asset prices across markets were lower in the third quarter, given the uncertain macroeconomic and market conditions,” says Lloyd Blankfein, chairman and CEO at Goldman Sachs in a statement. “Our results were significantly impacted by the environment and we were disappointed to record a loss in the quarter. However, we believe the strength of both our client franchise and our balance sheet positions us well for when economies and markets improve.”

Investment banking took a hit in Q3 this year, with net revenues 33% lower than in the third quarter of 2010 and 46% lower than this year’s second quarter.

Net revenues in the firm’s underwriting business were $258 million, 61% lower than the third quarter of 2010, while net revenues in both equity underwriting and debt underwriting were significantly lower than the third quarter of 2010, reflecting a significant decline in industry-wide activity, says Goldman Sachs.

Meanwhile, the firm’s investment banking transaction backlog increased compared with the end of the second quarter this year.

Investment banking divisions have hurt many banks in this earnings season. JPMorgan , now the largest US bank by assets, said its trading revenue fell by 13% from the second quarter this year, as its investment banking fees dropped to the lowest level since 2006.

Citigroup revealed similar causes for lower revenues, as investment banking fees fell 32% quarter on quarter, and lower. Despite the bank saying its securities and banking revenues increased by 20% to $6.7 billion in the third quarter this year, it was mainly due to a credit valuation adjustment (CVA), which is the market value of counterparty risk, and added $1.9 billion of positive CVA from Citi’s credit spreads. Without this CVA inclusion, its revenues here would have been down 12% year-on-year.

Check out the November issue of Euromoney, as we will analyze how continued pressure from the withdrawal of investors in the funding market impacts upon banks margins and is prompting radical changes to their business models.

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