Goldman Sachs, the banking industry's perpetual winner, was this quarter's loser.
The storied investment bank lost $428 million in the third quarter, driven by sharp drops in underwriting and trading revenue brought on by the wild swings in markets this summer. Goldman also had losses from souring investments in stocks, bonds and other holdings.
The loss announced Tuesday, which was worse than analysts expected, marked just the second time that Goldman has posted a quarterly loss since going public in 1999. Other Wall Street banks also had trouble in their investment banking divisions, but Goldman fared worse.
It's too early to tell if the loss at Goldman Sachs Group Inc. is a temporary blip driven by a wild period in the markets or a sign of cracks in the bank's long-held business strategies. Whatever the case, the results of the bellwether company suggest that big banks are still struggling to figure out how to navigate a new world of weaker economies and tighter government control.
"This is the best proof that the financial crisis is far from over," said Ken Thomas, a Miami-based banking consultant.
Analysts point out that Goldman is naturally more susceptible to swings in the stock market, which has been under pressure because of fears about weak European banks and the losses they could suffer if the Greek government goes through a messy default. Those banks have large holdings of Greek bonds.
Goldman relies heavily on market-driven investment banking services, such as trading bonds and underwriting companies' stock offerings, for its revenue. It doesn't have the same level of plain-vanilla borrowing and lending to fall back on when the investment banking operations falter.
Chief financial officer David Viniar said on a conference call with analysts that he's confident the economy and markets will improve, eventually.
"Last week, big market rally; yesterday, big market decline," Viniar said. "So I think there's still a lot of uncertainty and a lot based on who says what on what day."
Goldman Sachs is known for beating the pack of other Wall Street banks. That didn't happen this time. Bank of America's investment banking and trading business reported a loss of $302 million, on a 26 percent decline in revenue. Goldman's overall revenue fell 60 percent. Citigroup Inc. reported a 12 percent decline in its securities and banking division, excluding an accounting gain.
Goldman's losses in the third quarter included losses of $1.1 billion on its stake in the Industrial and Commercial Bank of China, $1 billion on other stock holdings and $907 million from bonds and loans.
Despite the latest quarterly losses, Viniar indicated Goldman wasn't planning to change its long-term strategy. The bank has "a strong track record" for making investment decisions, Viniar said.
Goldman also has a long history for standing when other banks fall. It safely weathered the financial crisis that crippled or killed many of its competitors, posting only one quarterly loss, at the end of 2008. Bank of America and Citigroup have each lost money in six quarters since the beginning of 2008.
Goldman has also churned out a number of senior government officials, including former Treasury Secretaries Hank Paulson and Robert Rubin and former New Jersey Gov. Jon Corzine.
At the same time, Goldman has become a lightning rod for the wrath of regulators, lawmakers and protesters. Some have come to view the bank as the epitome of the greed and risky practices that led to the financial crisis. Goldman, which set aside $59 million in the third quarter for litigation and regulatory proceedings, has been subject to regulatory fines, probes and other headaches.
The bank has been retrenching in some areas. In July it said it would eliminate as many as 1,000 jobs to shore up cash. Tuesday it said had 34,200 employees, down 1,300 from the previous quarter.
The loss of $428 million was equivalent to 84 cents per share. The bank earned $1.7 billion, or $2.98 per share, in the same period a year ago.
Revenue slumped 60 percent to $3.6 billion, missing analysts' estimates. Year-over-year revenue has fallen for each of the past six quarters, and in the second quarter, Morgan Stanley took in more revenue than Goldman.
Some observers have questioned whether Goldman will try to shed its status as a bank holding company, which could free it up to make more money in certain investment banking services. Goldman and Morgan Stanley both converted to bank holding companies in September 2008, which gave them easier access to capital but also placed them under stricter federal regulations.
"If they remain a bank holding company, the future for them is not as bright," said Mark Williams, a former Federal Reserve bank examiner. Bank spokesman Stephen Cohen said Goldman has "no plans" to change its status as a bank holding company.
Investors were unfazed by the quarterly loss, which had been widely expected due to the turmoil in financial markets this summer. Goldman's stock rose 5.5 percent to close at $102.25.
Analysts said the stock, which is down from more than $128 when second-quarter earnings were reported, had already priced in Tuesday's dismal earnings report.
Thomas, the banking consultant, acknowledged that Goldman might be unpopular on Main Street but said that wouldn't affect its long-term strength.
"They're the Gordon Gekkos of today," Thomas said. "But that doesn't mean they're in any way diminished of their abilities."