By Saeed Azhar and Arasu Kannagi Basil
NEW YORK, Sept 16 (Reuters) – The chief of Goldman Sachs said on Wednesday he expects the bank’s fixed-income, currencies and commodities (FICC) business to be slightly softer in the third quarter compared to very strong performance for its equities business, prompting a slump in its shares.
Chief Executive David Solomon also cautioned investors to expect a much more muted third quarter from the perspective of the firm’s investment line after significant activity in the second quarter.
“Our equity business continues to be very strong on a relative basis. FICC has been a little bit softer on a relative basis, but there’s still a few weeks left in September,” he told the Barclays’ global financial services conference.
The Wall Street bank’s shares fell almost 4%, underperforming other bank shares which were also weaker, reacting to the Federal Reserve’s move to hike interest rates.
Goldman’s FICC business has been volatile this year. Net revenue surged 32% in the second quarter from a year earlier, but fell 10% in the first quarter when its rates business was hit by volatility from the Iran war.
“We’re not particularly surprised, and had underwritten a 12% sequential decline in investment banking revenue and an 11% sequential decline in FICC revenue for Goldman in Q3,” said Sean Dunlop, banking analyst at Morningstar Research.
“If anything, ‘slightly softer’ might be more constructive than our outlook.”
Goldman Sachs exceeded second-quarter profit expectations as deal-making picked up and market volatility, fueled by the Iran war, boosted equities revenue to a record.
INVESTMENT BANKING
Bank of America CEO Brian Moynihan had said on Monday that investment banking fees in the industry will fall about 10% in the third quarter, with his bank seeing more of a decline than the industry, which triggered selling across banking shares.
Global investment banking revenue dropped to $21.194 billion in the third quarter through September 15, versus $23.765 billion a year ago, Dealogic data shows, due to slowdowns in mergers and acquisitions and the raising of debt.
“We’ve obviously not hit the peak yet in equity trading, but that looks likely sooner than later, with no obvious long-term catalyst for recently surging equity trading volume,” Morningstar’s Dunlop said.
Solomon said the firm’s transaction expenses are running higher, while it has accelerated some its technology investments.
As a result, the firm’s non-compensation expenses will be higher by $500 million while provisions for bad debt will creep up due to “a couple of idiosyncratic things”, Solomon said without elaborating.
(Reporting by Saeed Azhar and Arasu Kannagi Basil; Editing by Jonathan Spicer)
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