Goldman Admits Low Client Activity, Profits Plunge

Goldman Sachs' reputation had taken a severe beating at the SEC and Congressional probes after Senator Levin exposed its devious deals that had hurt its clients and promoted its own interest. Now, after its disastrous showing, the Wall Street Bank has admitted to being hit by “low client activity levels” in 2010. The firm’s fourth quarter earnings dropped a whopping 53% to $2.39 billion against $4.95 billion in 2009. Goldman CFO David Viniar said that its backlog of investment banking business fell from the third quarter and dampened the revenue.

The third quarter steep drop of 40% had already shrunk profits to $1.9 billion from a robust $3.19 billion the year before and the successive declines in both quarters resulted in its annual earnings crashing by 38% to $8.35 billion even as its revenues dropped by 13% to $39.2 billion. Though its combative CEO Blankfein tried to blame the slump on difficult market conditions, a spate of euphoric results by competitors J.P. Morgan, Wells Fargo, Morgan Stanley and even Citibank showed that it was only that Goldman was rapidly losing client trust both in investment banking and the F.I.C.C. fixed income, currency and commodity business. Goldman, however, did nothing to improve its image.

In December at a Reuters Press Conference, Goldman forecast that copper would be a strong performer; a delayed forecast after the metal had risen continuously for 6 months at the LME and was in the process of being spiked to a high above 2008 speculative levels. Investors buying at such all-time high peaks normally get stuck and provide an exit route for the banks to move out their investments to safer less heated commodities. Interestingly Goldman’s own trading activities increased to 23% during the year as it directly invested $550 million along with J.P. Morgan in buying metal warehousing giant Metro International a LME approved stockist, just before copper started rising in March 2010.

In January it juggled with its disclosure norms making little adjustments but doing nothing substantial to provide transparency to its F.I.C.C. earnings that had been criticized by both investors and lawmakers. Then it went ahead to announce that the lucrative Facebook private placement will be made available only to investors outside the U.S., showing that it had by now little appetite for U.S. regulatory norms.

Finally, it surprisingly chose its employees over its shareholder interest even though performance had nosedived when it came to distributing the annual bonus and dividends. Goldman announced that it would pay nearly 39.3% of its revenue as employee compensation, which was higher than the 35.8% paid last year even though its revenue fell by 13% and profits by 38%. The net employee compensation for the year 2010 would drop marginally by 5% to $15.38 billion and would be almost twice the shareholder payout which is a more modest 21% of the revenue. This is bound to raise investor concerns and the suave and dapper CEO Blankfein may have some explaining to do to its share holders during the upcoming AGM which promises to be feisty.

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