Goldman Sachs Group Inc's profit plunged for the second straight quarter as bond trading revenue fell by a third amid market turmoil stemming from concerns about global growth.
Revenue fell in all of the bank's major businesses except investment banking, which benefited from a surge in takeovers.The results are the latest example of how the grim trading environment is gutting Wall Street.
Turbulent trading, much stemming from worries about the flow-on effect of China's cooling economy, was aggravated by uncertainty over the timing of a U.S. interest rate hike.
"We experienced lower levels of activity and declining asset prices during the quarter, reflecting renewed concerns about global economic growth," Chief Executive Lloyd Blankfein said in a statement on Thursday.
Goldman said revenue from fixed-income, currency and commodity (FICC) trading, fell 33% to $1.46 billion, the biggest year-over-year drop since the third quarter of 2013. Excluding adjustments, revenue would have fallen 27%.
Goldman joins JPMorgan Chase & Co, Bank of America Corp and Citigroup Inc in reporting a drop in revenue from bond trading. Both JPMorgan and Bank of America reported 11% declines in FICC revenue, while Citi's revenue from the business fell about 16%.
"Investors sit it out in such a market. They don't trade," said Erik Oja, an analyst at S&P Capital IQ. "Unless such a market rout happens again, I would expect Q4 trading revenues at the banks to improve compared to Q3."
Goldman, whose shares were down 1.5% in early trading, said its net income applicable to common shareholders fell 38% - to $1.33 billion, or $2.90 per share, from $2.14 billion, or $4.57 per share, a year earlier.
Analysts had expected earnings of $2.91 per share for the third quarter ended Sept. 30, according to Thomson Reuters I/B/E/S. Net revenue fell 18.2% to $6.86 billion, far short of the average estimate of $7.12 billion.
Goldman has stressed the bank's commitment to trading, even as other banks have pulled back or exited the business to focus on less-volatile activities that require less capital. New rules aimed at improving the stability of the banking system also discourage banks from trading off their own balance sheets.
Still, FICC contributed just 21.3% to revenue in the latest quarter, compared with about 40% at its peak.
One bright spot was investment banking.
Revenue in Goldman's investment banking unit, which underwrites debt and stock offerings and advises on deals, rose 6.3% to $1.56 billion.
The bank led U.S. target M&A advisory work this year with 124 deals worth $522.2 billion as of Sept. 18, according to Thomson Reuters data. JP Morgan was second with $460.4 billion.
Fifty-four deals greater than $5 billion had been announced in the United States by mid-September, a 68% increase from the same period last year.
Revenue from equities trading rose 9% to $1.75 billion, matching the performance of JPMorgan. Citi's revenue from the business rose 31%, however, while Bank of America's increased 12%.
However, Goldman's equity underwriting revenue experienced its weakest quarter in three years, more than halving to $190 million as many firms delayed going public in a stormy market.
IPO activity in the United States this year totaled $24.5 billion as at Oct. 9, down 42% compared to the same period last year, according to Thomson Reuters data.
Up to Wednesday's close of $179.51, Goldman's shares had fallen 7.4% since the start of the year, underperforming the S&P 500 index which lost 3.14%.
Return on equity was 7%, compared with 11.8% last year. The bank spent 16% less on employee compensation in the quarter.