In The Corner

Goldman Sachs Reports Plunging Profits While Citigroup Prospers

Goldman SachsBanking giant Goldman Sachs reported a sharp fall in profits as trading activity slows due to growing concerns about the global economic growth. The company’s net profits for the past three months went down more than a third compared a year earlier, with revenue falling almost 20% to $6.9bn.

Plunging Profits

Revenue continues to fall throughout the bank’s major businesses, ranging from investment management, bonds, currency, and commodities trading. Investment banking is the only exception, with the sector reporting increasing revenue despite the overall drop. The results are a grim reminder of how gloomy and pessimistic the trading environment has become, ever since the recent Chinese economic slowdown which put considerable strain on Wall Street.

Chief Executive Lloyd Blankfein said, “We experience lower levels of activity and declining asset prices during the quarter, reflecting renewed concerns about global economic growth.” Goldman Sachs is just among the many US banks that reportedly took a hit after US stock markets fell last August, although Citigroup was able to cut costs despite falling by 5% to $18.69bn.

Michael Corbat, the chief executive of Citigroup, said, “Despite revenue headwinds, we once again proved our ability to manage our risk, our expenses, and our capital.”

Stock Plunge Risk

China’s economic slowdown was a major setback for the entire world. The Asian giant accounts for 15% of world economic output, contributing as much as half of the world’s growth in recent years.

Citigroup

Image Courtesy of Mattbuck

Its impact on other countries is something many should take note of; although the slowdown has limited impact on its many trading partners, countries that sell raw materials are the most affected by the economic slowdown. China devaluating its currency does not help the increasing strain on the global market.

Admittedly, the short-term outlook for the U.S. and other first-world countries is relatively benign, but the stability is fragile at best. The underlying growth is being compromised by an aging population. This, in turn, is slowing the workforce, which then contributes to the slowdown of the output each worker produces.

All these factors seemingly explain the reason many banks throughout the country are reporting sudden and sharp revenue losses, as more people prefer to wait in the sidelines for the global economic slowdown to start picking up again.

Despite the rather pessimistic overview of the market, Goldman Sachs stresses the bank’s commitment to trading, even as other banks have started pulling out or exiting the business to focus on less volatile activities.

Additionally, Goldman Sachs is ramping up its investment management division, with the hopes of offsetting the present volatility in its trading arm.