Goldman's CEO Lloyd Blankfein's best profits may be behind him (Larry Downing/REUTERS)
Goldman Sachs, it appears, is no longer the finely honed money-making machine that is has long been. On Wednesday, the most envied, and hated, firm on Wall Street confirmed that its profits fell 52% in the fourth quarter of 2010, from a year ago. The firm's earnings trouble came in an already bad week for Goldman. On Monday, Goldman told its US clients that they would no longer be able to participate in Facebook's $2 billion private stock offering. The move was seen as a public admission that Goldman had blundered one of Wall Street's most high profile deals since the beginning of the recession.
To top it all off, on Tuesday, a new report said that despite Goldman's recent troubles, which included that $550 million fine it had to pay the Securities and Exchange Commission, Goldman's partners are still raking in the bucks. CEO Lloyd Blankfein alone has cashed in nearly $100 million in Goldman shares since 1999. Even the average Goldman partner's take was $24 million.
The big problem for Goldman, and indeed, the rest of the banking sector, is that Wall Street seems far less profitable than it used to be. Here's why:
While most people focused on the drop in Goldman's profits, the real worry for the firm was the drop in its profitability. Goldman's revenue in the last three months of 2010 was down 10%. But the firm's profits were down far more than that. That means that Goldman is making considerable less money than it used to on the nearly the same amount of revenue.
And Goldman was not alone in that trend. Both Citigroup and JP Morgan also saw a jump in costs. This is in part because of Dodd-Frank and other new regulations, but not only. Most of the new rules have not started yet. And it is still not clear how others will affect the banks. Still, Dodd-Frank is forcing the firms to be less dependent on proprietary trading. And that was a very profitable business. So it is likely that Goldman's less profitable quarter is a sign of things to come.
The good news here is that proprietary trading is also a very risky and volatile business. So even if Goldman and the others make less money, the money they make will be more consistent.
Get e-mail updates from TIME's The Curious Capitalist in your inbox and never miss a day.
The Curious Capitalist Favorite Links Barry Ritholtz Calculated Risk Ezra Klein James Pethokoukis John Gapper Justin Fox Marginal Revolution Mark Thoma Market Observation More Money Paul Krugman Planet Money Street Sweep Swampland adFactory.getCmAd(300, 250, "global", "tout").write(); adFactory.getCmAd(300, 100, "article", "tout").write(); ArchiveJanuary 2011SMTWTFS 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 More News from Our Partners CNN Solar-powered 'smart' roads could zap snow, ice 1.78 million Facebook users may die in 2011 Starbucks accepting mobile payments Huffington Post Booze Bottles Could Get Nutrition Labels Michael Tasner: Your Company's Core Purpose Steven Cohen: We Need Smart, Agile and Innovative Environmental Police Force DailyFinance.com Watch Out, ESPN: Comcast Forms Big Rival with NBC Universal Apple Can Succeed Without Steve Jobs, but Can It Still Be Apple? Social Insecurity: The Retirement 'Trust Fund' Is an Expensive Illusion - mas working Rotten Tomato Awards Tour: 2011 BAFTA Awards Nominations RT on DVD & Blu-Ray: Buried and Animal Kingdom Box Office Guru Wrapup: The Green Hornet Buzzes To The Top Life Mystery Extinctions The World's Worst Dictators LIFE With Sargent Shriver More on TIME.com » Profit Sinks: Has Goldman Lost Its Magic? My Mixed Feelings About Retiring Sen. Joe Lieberman Tunisia's New Regime: A Lot like the Old Regime? Quotes of the Day » "China's future, and destiny, are increasingly tied to those in the rest of the world." HU JINTAO, President of China, in remarks at the White House as part of his official state visit to the U.S. More Quotes » var ad = adFactory.getAd(88, 31); ad.setPosition(13) ad.write(); Today in Pictures » Fallen Stay Connected with TIME.com Learn More » Subscribe to RSS Feeds Sign Up for Newsletters Add TIME Widgets Read TIME Mobile on Your Phone Become a Fan of TIME Get TIME Twitter Updates adFactory.getCmAd(115, 42, "homepage", "tout").write(); © 2011 Time Inc. All rights reserved | Privacy Policy | RSS | Newsletter | TIME For Kids | LIFE.com Subscribe | Contact Us | Terms of Use | Media Kit | Reprints & Permissions | Opinion Leaders Panel | Help | Site Map TiiAdTrackRevSci(); function tiQuantcast() { } _qoptions={ qacct:"p-5dyPa639IrgIw", labels:tiQuantcast() } var KRUXSetup = { "pubid": "a0aa309c-d0ef-4b32-9684-99ab0888e402", "site":"Time.com", "section":(typeof(s_time.prop16)=="undefined") ? "" : s_time.prop16, "sub_section":(typeof(s_time.prop11)=="undefined") ? "" : s_time.prop11, "userData": { "content_type":(typeof(s_time.prop7)=="undefined") ? "" : s_time.prop7 } }; KRUX.SuperTag.invisibleTags(); Powered by WordPress.com VIP var gaJsHost = (("https:" == document.location.protocol) ? "https://ssl." : "http://www."); document.write(unescape("%3Cscript src='" + gaJsHost + "google-analytics.com/ga.js' type='text/javascript'%3E%3C/script%3E")); try { var pageTracker = _gat._getTracker("UA-10268691-1"); pageTracker._trackPageview(); } catch(err) {} var _sf_async_config={uid:3088,domain:"curiouscapitalist.blogs.time.com",pingServer:"ptimeinc.chartbeat.net",path:window.location.pathname}; _sf_async_config.authors = 'Stephen Gandel'; _sf_async_config.sections = 'banks'; (function(){ function loadChartbeat() { window._sf_endpt=(new Date()).getTime(); var e = document.createElement('script'); e.setAttribute('language', 'javascript'); e.setAttribute('type', 'text/javascript'); e.setAttribute('src', (("https:" == document.location.protocol) ? "https://s3.amazonaws.com/" : "http://") + "static.chartbeat.com/js/chartbeat.js"); document.body.appendChild(e); } var oldonload = window.onload; window.onload = (typeof window.onload != 'function') ? loadChartbeat : function() { oldonload(); loadChartbeat(); }; })(); // /* a.like').click( function(e) { e.preventDefault(); jQuery('#wpl-mustlogin').remove(); jQuery.post( 'http://timecuriouscapitalist.wordpress.com/wp-admin/admin-ajax.php', { 'action': 'wpl_record_stat', 'stat_name': 'loggedout_like_click' } ); var tenMins = new Date(); tenMins.setTime( tenMins.getTime() + 600000 ); document.cookie = 'wpl_rand=af31333fa4; expires=' + tenMins.toGMTString() + '; domain=wordpress.com; path=/;'; jQuery('#wpl-count').after( '\ \ \Just one more step to like this post:
\ Username \ Password \ \ \ \Not a member yet? Sign up with WordPress.com
\ \ \ '); jQuery('#wpl-mustlogin').hide().slideDown('fast'); } ); jQuery('#wpl-mustlogin input.input').live( 'focus', function() { jQuery(this).prev().hide(); }).live( 'blur', function() { if ( jQuery(this).val() == '' ) jQuery(this).prev().show(); }); jQuery('#wpl-mustlogin input#wp-submit').live( 'click', function(e) { e.preventDefault(); jQuery.post( 'http://timecuriouscapitalist.wordpress.com/wp-admin/admin-ajax.php', { 'action': 'wpl_record_stat', 'stat_name': 'loggedout_login_submit' }, function() { jQuery('#wpl-mustlogin form').submit(); } ); }); jQuery('#wpl-mustlogin a#wpl-signup-link').live( 'click', function(e) { e.preventDefault(); var link = jQuery(this).attr('href'); jQuery.post( 'http://timecuriouscapitalist.wordpress.com/wp-admin/admin-ajax.php', { 'action': 'wpl_record_stat', 'stat_name': 'loggedout_signup_click' }, function() { location.href = link; } ); }); }); /* ]]> */ _qoptions={qacct:'p-18-mFEk4J448M',labels:'language.en,type.wpcom,vip.timecuriouscapitalist'}; // ' ).html( data[key] ) ); } } }; jQuery(document).ready(function($){ Gravatar.profile_cb = function( h, d ) { WPGroHo.syncProfileData( h, d ); }; Gravatar.attach_profiles(); }); // ]]> try{COMSCORE.beacon({c1:2,c2:7518284});}catch(e){} st_go({'blog':'5320466','v':'wpcom','user_id':'0','post':'12918','subd':'timecuriouscapitalist'}); ex_go({'crypt':'RDZ8LFkxbXF2TVluJVFmT0xoZkVaUCVrM3R3cCU2Wi10dWQ0JktGcGFFRkZuR0ZNW0dDN1J4NTFWaiU2Y1FZUHVSPytUVTJEWjhBQ2RTVEIleDJqNHZaP2FSaWcyY29XX2ZzRjNiZCt3VXVMUTBZWz9Bals3eTFSNG15RzVyMFEwS3hXV0c9Q25qS0E2UiV0dXFFZHwxWHNVU01URWdYfnVWSXVpT2wtMi4tP3VFRDdiSVNCem1SPWdvckwyRHlsMkJDW2dpcC9MYzVRP2ddX29bRHpaN3ZXTj02RmE='}); addLoadEvent(function(){linktracker_init('5320466',12918);});Not a member yet? Sign up with WordPress.com
Read Full Article »