Goldman Sachs Group Inc. reported a steep drop in earnings during the third quarter because of a big slowdown in its most lucrative business: trading commodities, currencies and bonds.
Net income after paying preferred dividends fell to $1.74 billion, or $2.98 per share, from $3.03 billion, or $5.25 per share, during the same three-month period last year.
Analysts say a drop in market volatility and the prospects for continued stability in interest rates coming out of the financial crisis and recession hampered trading during the quarter.
Goldman's chief financial officer David Viniar said trading volume also dropped because clients were uncertain about the strength of the broader economy.
During a conference call with analysts Tuesday, here's what Viniar said about the slowdown in client activity:
"The operating environment during the third quarter was dominated by heightened uncertainty surrounding the global economic outlook, which contributed to lower activity levels across our global client base.
"As you know, our ability to generate revenues and returns for our shareholders is dependent on our clients transacting in the marketplace. Whether it is a CEO who wants to expand through an acquisition or a portfolio manager deciding to allocate capital to different investment strategies, the opportunity for our firm begins with a client's decision to act.
"While we have seen some modestly positive signs in recent weeks, it is difficult to predict the catalyst for improved client activity, especially since human psychology can be an important driver."