NEW YORK – Wall Street firms Goldman Sachs Group Inc. and Bear Stearns Cos. Inc. on Wednesday posted steep quarterly profit declines as investment banking fees and trading revenues fell, and warned the Sept. 11 attacks will hurt earnings ahead.
Mergers and new stock offerings -- Wall Street's most lucrative businesses -- ground to a halt this summer, slashing revenues at Goldman, Bear Stearns and rivals Lehman Bros. Holdings Inc. and Morgan Stanley. Trading revenues fell because of lower stock volumes, although strong bond operations powered by lower interest rates somewhat offset the weakness.
Goldman posted a 43 percent profit decline for its third quarter ended Aug. 31, while Bear Stearns' earnings for the same quarter and time frame dropped 26 percent. The results, though, beat analysts' expectations, spurring a 2 percent rise in Goldman's stock to $71.45 and a 1 percent gain in Bear Stearns shares to $47.50.
Goldman and Bear Stearns painted a bleak near-term outlook as already bad stock market conditions worsened after the World Trade Center and Pentagon attacks, which came 11 days after their third quarters ended. The Dow Jones industrial average posted its worst week since the Great Depression when U.S. stock trading resumed following a four-day halt.
``The market conditions of the third quarter were difficult and those difficulties have intensified early in the fourth quarter,'' Bear Stearns Chief Executive James Cayne said in a statement.
Goldman's investment banking fees dried up in the third quarter and the company's investment portfolio booked a $445 million loss. Strong bond, currency and commodities trading revenues failed to offset weak stock trading operations.
The stock market rout sliced Bear Stearns' share trading revenues even as lower U.S. interest rates helped its bond business. Investors flocked to bonds as a safe haven from plummeting stock prices.
CONFIDENT ABOUT LONG-TERM
Goldman posted earnings of $468 million, or 87 cents a share, compared with a profit of $824 million, or $1.62 a share, a year ago. Excluding the amortization of goodwill and other intangible assets, Goldman earned 94 cents a share.
Analysts expected the company to earn between 70 and 98 cents a share, with a consensus of 81 cents, according to market research firm Thomson Financial/First Call.
``We are very confident about the long-term outlook for our business, but believe that the immediate impact (of the attacks) will be a further weakening in the operating environment and a delay in the economic recovery,'' Chief Executive Henry Paulson said in a statement.
Bear Stearns reported net earnings of $134.6 million, or 95 cents a share, down from $181.4 million, or $1.32 a share, a year earlier.
Analysts had expected earnings of 83 cents to 95 cents a share, with an average estimate of 90 cents, according to research firm Thomson Financial/First Call.
Goldman is a bigger player in the merger advisory and stock underwriting game than Bear Stearns, and its investment banking revenue fell 17 percent, mostly due to fewer equity sales.
The value of its investment portfolio has dropped to about $2.4 billion from $3.5 billion a year ago. The $1.1 billion decline reflects a combination of unrealized losses and sales, Chief Financial Officer David Viniar told reporters on a conference call. He declined to go into further detail.
``The environment remains weak,'' Viniar said. ``We are cautious about the fourth quarter, but I can't predict what our results are going to be.''
BONDS A BRIGHT SPOT
Bear Stearns' investment banking revenues fell only 3 percent, but equity trading revenues fell 32 percent as trading volumes and volatility fell especially hard during the traditionally slower summer months.
Bond operations were strong, however. The company booked a 78 percent increase in fixed income revenues to $416.1 million. The U.S. Federal Reserve has cut interest rates eight times this year, making it possible for companies to refinance their debt loads at lower prices.
Bear Stearns attributed the strong bond results to its mortgage-backed securities, high-yield and credit derivatives units.