Earnings sink 70% but beat analyst projections. Stock falls, but CEO insists that firm is 'well positioned.'
NEW YORK (CNNMoney.com) -- Goldman Sachs reported a sharp decline in profits Tuesday that beat Wall Street's forecasts. But revenues missed analysts' estimates and the stock plunged in early trading.
The New York City-based investment bank said its profits fell 70% to $845 million, or $1.81 a share, during the third quarter ending in August. Just a year ago, the company reported a profit of from $2.85 billion, or $6.13 a share.
Wall Street was expecting a profit of $1.71 a share.
Net revenue tumbled more than 50% to $6.04 billion from $12.3 billion during the same period last year, missing projections of $6.2 billion.
Isabel Schauerte, an analyst with Celent, a Boston-based financial research and consulting firm noted the latest results from Goldman damage the firm's "aura of invulnerability."
"For the time being, the crisis of confidence weighs on the firm's earnings power and may potentially narrow its access to funding," Schauerte wrote in a research note.
With investment banking activity at a virtual standstill and financial markets in disarray, few were expecting a banner quarter for Goldman.
After declining 12% Monday -- one of the company's worst drops of the year as the Dow fell more than 500 points --Goldman (GS, Fortune 500) shares continued to decline Tuesday, falling 6% in late morning trading.
Investors were watching Goldman's results carefully in light of the rapidly changing financial landscape.
Fellow investment bank Lehman Brothers (LEH, Fortune 500) filed for bankruptcy Monday, marking the biggest ever in U.S. corporate history.
Merrill Lynch (MER, Fortune 500), a Wall Street icon known for its famous bull logo, also announced plans to be acquired for some $50 billion by Bank of America (BAC, Fortune 500), after enduring billions of dollars in losses as a result of ambitious bets on the U.S. mortgage market.
Goldman rival Morgan Stanley (MS, Fortune 500) is slated to report its quarterly results Wednesday.
Lloyd Blankfein, Goldman Sachs' chairman and CEO, described the quarter as challenging, blaming Tuesday's results on a decrease in client activity and declining asset valuations.
"Despite the deteriorating market conditions, the focus of our people and strength and breadth of our client franchise produced a solid performance in a tough environment," Blankfein said in a statement.
He added that the company remains "well-positioned to meet the needs of our clients and identify and act on the right market opportunities."
Investment banking, a cornerstone of the Goldman's business, was one of the hardest hit divisions of the company. Revenues in the division plunged 40% as advisory and underwriting activity stalled during the quarter.
But it was Goldman's trading and principal investment division, which includes the company's equity, fixed income, currency and commodities businesses, that suffered the most. Revenues fell by two thirds during the quarter to $2.7 billion.
Analysts warned ahead of Tuesday's earnings announcement that the division could see signs of strain since Goldman Sachs ties more of its business to the stock market than any of its peers.
Bucking the trend was the company's asset management and securities business, which reported a 4% increase in revenue during the quarter.
Despite this quarter's woes, Goldman continues to remain relatively well capitalized. The company said its Tier 1 capital ratio - a widely used measure of a bank's ability to absorb losses - stood at 11.6%, up from 10.8% in the previous quarter.
A Tier 1 capital ratio of above 8% is generally considered a good sign for financial institutions.
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