Goldman’s Wings Clipped By Low Leverage, Few Opportunities

The Wall Street Journal’s Liz Moyer repors that at Goldman Sachs Group Inc. (GS), fixed income trading is settling back from the heights reached in the last two years, and for this Wall Street trading juggernaut, normal means boring.

Without proprietary trading–which new regulations forced Goldman to exit–and without a steady flood of customer orders to juice its trading desks, Goldman was not able to produce the eyepopping results that catapulted it in quarters past.

Goldman’s wings have been clipped by low leverage and a lack of opportunities to change that anytime soon. “We’re not holding back leverage,” David Viniar, Goldman’s chief financial officer, said on a conference call Tuesday. “We’re taking advantage of opportunities where we see them with our clients. But there aren’t that many.”

First quarter profits fell 21% over last year, to $2.74 billion, or $1.56 a share including the effects of a $1.64 billion preferred dividend.

Even without the dividend, earnings per share of $4.38 were lower than the $5.59 reported in last year’s first quarter.

Most notably, revenues from fixed income, currency and commodities trading, long Goldman’s biggest and most lucrative business, fell 28%, and revenues from equity trading fell 24%. Revenues from market making–which would be trading for clients–fell 30% from last year.

Analysts said the first quarter results were generally stronger than expected. Goldman beat expectations, and trading rebounded strongly from the poor fourth quarter. But Goldman didn’t beat expectations in the same convincing way it did in past quarters.

David Trone at JMP Securities noted Goldman’s 34% pre-tax operating margin and said “very few companies in America can match that.”

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