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Steve Walker
Business Analyst / PM - Associate, Goldman Sachs,
New York, NY

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STREET Cred - 2,106

By SUSANNE CRAIG

Goldman Sachs on Tuesday reported profit of $1.05 billion, more than double last year but lower than what analysts were expecting.

The performance of the investment bank, which had largely shed the legacy of the financial meltdown, reflects the new reality on Wall Street. Amid the regulatory and economic uncertainty, Goldman is struggling to lift its earnings power to pre-crisis levels.

The bank’s second quarter profit of $1.85 a share came in short of analyst expectations of $2.27 a share, according to Thomson Reuters. A year ago, Goldman earned 78 cents a share, or $453 million, with a notable trading miss in its equity department.

The big hit for the firm this quarter was in the fixed-income department. This division, which includes fixed Income, currency and commodities client execution, logged net revenue of $1.60 billion, 53 percent lower than the second quarter of 2010, with results down significantly in mortgages, commodities and interest rate products.

The firm substantially reduced its risk in the quarter, missing opportunities that others captured, said a person with knowledge of the matter but not authorized to speak on the record. Goldman, the person said, took a more conservative view of the market.

“During the second quarter, the operating environment was more difficult given global macro-economic concerns,” said Lloyd C. Blankfein, Goldman’s chairman and chief executive officer. “In addition, 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.”

Not all banks are created equal this quarter. With its diversified business model, JPMorgan Chase posted a quarterly profit of $5.4 billion, up 13 percent from the year-ago period. Citigroup also notched a strong showing with improvements in lending offsetting lackluster trading results.

By comparison, Goldman is more dependent on the commissions generated from trading, which dropped dramatically in recent months. Overall revenues at the bank fell to $7.28 billion, from $8.8 billion in the year ago.

“Trading activity has been extremely slow,” said Nomura stock analyst Glenn Schorr.