Goldman Sachs Group Inc. swung to a fiscal fourth-quarter net loss on slumping results at its equities business, the banking giant's first quarterly loss since going public a decade ago.
The investment banking landscape has changed dramatically since Goldman reported its last results. Goldman and rival investment bank Morgan Stanley are now the only major independent U.S. brokerages left after the economic downturn and a series of bad investments forced their other competitors to bankruptcy or into the arms of rivals.
Goldman and Morgan have become bank holding companies, providing them with access to the federal government's $700 billion rescue plan, allowing them to borrow at the Federal Reserve's discount window and making it easier to get stable sources of funding.
Goldman Sachs' shares were recently up 5.1% at $69.81 in premarket trading.
But even that financing can't mask the woes from this quarter, as the company saw its revenue turn negative amid declines in values "across virtually every asset class," according to Chief Executive Lloyd Blankfein.
For the period ended Nov. 30, Goldman reported a net loss of $2.12 billion, or $4.97 a share, compared with net income of $3.22 billion, or $7.01 a share, a year earlier.
Net revenue was negative $1.58 billion, compared with positive $10.74 billion a year earlier.
Analysts polled by Thomson Reuters expected a loss of $3.73 a share on revenue of $932 million.
"While our quarterly performance obviously didn't meet our expectations, Goldman Sachs remained profitable during one of the most challenging years in our industry's history," Blankfein said.
Analysts had said they expected a big chunk of the government bailout money that large banks received to go toward fourth-quarter write-downs and loss provisions. Goldman Sachs received $10 billion from the government's Troubled Asset Relief Program.
Investment-banking revenue slid 48% as financial-advisory revenue dropped 54% amid a decline in industry-wide completed mergers and acquisitions. Goldman said its investment banking transaction backlog fell during the quarter and ended the year "significantly lower" than at the end of 2007.
Revenue plunged to negative $4.36 billion at Goldman's trading and principal investments business, from revenue of $6.93 billion a year earlier. Equities revenue gained 2% as losses in principal strategies failed to offset higher revenue from derivatives.
Meanwhile, the principal investments group recorded a net loss amid losses from corporate and real-estate investments.
The asset-management and securities-services division, which includes lending and other services to hedge funds, posted a 5% drop in revenue as profits fell 19% due to lower fees amid market depreciation and outflows in assets.
Until recently, Goldman had been known as having a magic touch after a correct bet that subprime mortgages would crater and its nimble avoidance of other messes. But Goldman also is facing danger from its heavy exposure to the equity markets, which have fallen roughly one-third this year, and its "book" of so-called distressed investments, which includes investments in everything from troubled auto loans in Thailand to struggling golf courses in Japan.
Goldman Sachs Group said it will cut about 3,250 jobs, or 10% of its work force, to save on costs. Goldman Sachs cut its Dubai-based work force earlier this month in line with the 10% global reduction in staff.
Morgan Stanley, on the other hand, did embarrass itself with some of its mortgage bets last year but had managed to soothe investors since then, as it scaled back on risky exposures. Morgan Stanley is set to report its quarterly results Wednesday.