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Goldman Profit Plunges 49%

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Goldman Profit Drops on Fixed Income, Surge in Litigation Costs

Goldman Sachs Group Inc. profit tumbled 49 percent as fixed-income trading revenue dropped more than rivals and litigation costs rose fivefold. Shares of the company fell about 1 percent.

Net income decreased to $1.05 billion, or $1.98 a share, from $2.04 billion, or $4.10, a year earlier, the New York-based company said Thursday in a statement. Excluding the $1.45 billion legal expense, earnings were $4.75 a share, beating the $3.96 average estimate of 24 analysts in a Bloomberg survey.

The highest investment-banking fees since 2007 weren’t enough to offset the decline in fixed income as concern Greece would be forced to abandon the euro weighed on volume. Goldman Sachs is in talks to be the latest major bank to settle a U.S. Justice Department probe into sales of mortgage securities before the financial crisis.

“While uncertainty in the EU weighed on investors’ level of conviction, many of our businesses continued to benefit from generally improving economic conditions and healthy client activity,” Chief Executive Officer Lloyd C. Blankfein said in the statement.

Fixed-income, currency and commodity trading revenue was $1.45 billion, down 35 percent from a year earlier, excluding accounting adjustments. That fell short of estimates of $2.05 billion from Macquarie Group Ltd.’s David Konrad and $2.11 billion from Steven Chubak at Nomura Holdings Inc.

JPMorgan Chase & Co. said Tuesday that fixed-income revenue fell 21 percent from a year earlier, with about half the decline caused by selling trading units. Bank of America Corp. on Wednesday reported a 9.3 percent drop for the business. Both firms reported at least a 13 percent jump in equities-trading revenue.

Return on Equity

Revenue at Goldman Sachs fell 1 percent to $9.07 billion. The firm’s return on equity, a measure of profitability that takes into account how much capital the business uses, was 4.8 percent in the second quarter, compared with 10.9 percent a year earlier. It was 11.5 percent excluding the legal cost.

Compensation, the firm’s biggest expense, fell to $3.81 billion, or 42 percent of revenue. That was the same percentage as in the first quarter, and down from 43 percent a year earlier. Goldman Sachs has cut the ratio in the years since the financial crisis in an effort to boost returns.

Second-quarter revenue from investment banking, the business run globally by Richard J. Gnodde, David M. Solomon and John Waldron, climbed 13 percent to $2.02 billion. The figure included $821 million of financial-advisory revenue, including fees for takeover advice, an increase of 62 percent. Revenue from underwriting declined 6 percent to $1.2 billion in the quarter, including $603 million from debt underwriting and $595 million for equity offerings.

Read this next: Trading Revenue

Goldman Sachs has leaned on revenue gains in investment banking and asset management to cushion the decline from trading, which last year posted the lowest revenue since 2005.

Goldman Sachs held the top spot among arrangers of global equity, equity-linked and rights offerings for the first half of this year, according to data compiled by Bloomberg. It also ranked first in advising on announced mergers and acquisitions and fifth in underwriting U.S. corporate bonds, the data show.

The firm announced two acquisitions of asset-management businesses since the start of the second quarter. The co-heads of that unit, Timothy O’Neill and Eric Lane, said earlier this year that annual growth will remain above 10 percent in the next few years as more investors shift to actively managed funds and the firm lends more to wealthy individuals.

The bank has held talks with the Justice Department over a $2 billion to $3 billion settlement of a probe into its sales of mortgage bonds leading up to the financial crisis, a person with direct knowledge of the situation said last month. Goldman Sachs set aside $944 million for litigation and regulatory proceedings in the five quarters ended in March.

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mind you, I wasn't so far off... here is considerable evidence of the bandit like nature of GS

The bank has held talks with the Justice Department over a $2 billion to $3 billion settlement of a probe into its sales of mortgage bonds leading up to the financial crisis, a person with direct knowledge of the situation said last month. Goldman Sachs set aside $944 million for litigation and regulatory proceedings in the five quarters ended in March.

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