Goldman Sachs on Tuesday reported its first quarterly loss since it became a public company in 1999, after a severe decline in asset values, including real estate, hit the bank's revenues.
Goldman, which converted from an investment bank into a bank holding company in September, lost $2.12bn in the fourth quarter, or a loss of $4.97 per share. The bank's top seven executives, including chief executive Lloyd Blankfein, will not receive any bonuses this year.
For the year, Goldman's revenues dropped by 52 per cent, from $46bn in 2007 to $22.2bn through November 30. Among its major business units, the biggest drop was in revenues in trading and principal investments, which posted $9bn in revenues for the year, a plunge of 71 per cent. Within that unit, Goldman sustained a $3.5bn loss related to real estate holdings.
"Our results for the fourth quarter reflect extraordinarily difficult operating conditions, including a sharp decline in values across virtually every asset class," said Mr Blankfein.
Shortly after the loss was announced, Moody's downgraded Goldman's long-term debt rating. "This crisis has demonstrated that the business model of wholesale investment banks is not as resilient as it appeared," said Peter Nerby, a senior vice-president at Moody's. The credit rating agency said the downgrade was driven by the loss and was "not indicative of a risk control failure at the firm".
In spite of the loss, which had been almost uniformly predicted by Wall Street analysts, Goldman posted full-year earnings of $2.32bn, or $4.47 per share, for fiscal 2008. That total marks a drop of 80 per cent from the company's 2007 earnings, which were $11.6bn.
Roger Freeman, an analyst with Barclays Capital, noted a severe reduction in compensation and said Goldman also gained a sizeable tax benefit for the quarter.
As for the loss related to real estate investments, chief financial officer David Viniar said much of that was attributable to fair value accounting, which requires assets to be marked to market.
Goldman's return on equity, which has exceeded 20 per cent for most of its nine-year run as a public company, was 4.9 per cent for 2008. In midday trading, the bank's shares were up $5.77 to $72.23.
Copyright: The Financial Times Limited 2008