Goldman Sachs has a bond-trading problem

lloyd blankfein
lloyd blankfein

(Goldman Sachs chairman and CEO Lloyd Blankfein.Jonathan Ernst/Reuters)

Goldman Sachs has a problem.

The US bank beat earnings estimates on Tuesday, with a strong performance in equities trading, debt underwriting, and asset management helping power the beat.

But the troublesome fixed income, currency, and commodities client execution unit had a weak quarter, with revenue, $1.16 billion, that was 40% lower than the second quarter of 2016 and 31% below its weak first quarter.

On a call with analysts, CFO Marty Chavez said rates revenue was down significantly, while the commodities business had its worst quarter on record. "It was a difficult quarter on all fronts," Chavez said.

"We didn't navigate the market as well as we aspire to or as well as we have in the past," he added.

At $1.16 billion, FICC revenue was significantly lower than equities trading revenue, which came in at $1.9 billion. It's also the worst quarterly performance for FICC since the fourth quarter of 2015. Here's a breakdown of Goldman's FICC revenue in recent quarters:

  • Q2 2017 — $1.16 billion

  • Q1 2017 — $1.685 billion

  • Q4 2016 — $2 billion

  • Q3 2016 — $1.96 billion

  • Q2 2016 — $1.93 billion

  • Q1 2016 — $1.66 billion

  • Q4 2015 — $1.12 billion

To be sure, the weakness in FICC was not unexpected. But the scale of the decline at Goldman Sachs is likely to worry Wall Street analysts and investors. Here's a comparison with what other Wall Street banks have reported so far:

  • Goldman Sachs FICC revenue — $1.16 billion — down 40% year-on-year

  • JPMorgan FICC revenue — $3.2 billion — down 19% year-on-year

  • Citigroup FICC revenue — $3.4 billion — down 6% year-on-year

  • Bank of America Merrill Lynch FICC revenue — $2.1 billion — down 14%

The weak second-quarter performance also follows a tough first quarter, when revenue ticked up by just 1% on the first quarter of 2016 and dropped from the final three months of 2016.

Goldman Sachs delivered $2.8 billion in FICC revenues in the first half, down 19% from the same period last year. That figure was $4.7 billion in 2015 and $5.1 billion in 2014, and it stood at more than $5.6 billion in both 2013 and 2012. In 2011, it was $5.9 billion, and in 2010 it was a whopping $9.4 billion. Goldman Sachs' latest first-half performance in FICC client execution was its worst since the US bank started reporting the results in the current format.

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