Business

Goldman, other banks eye quarterly losses

Goldman Sachs employees got a hint of how bad things have gotten last week when they visited the bank’s free coffee tray — the cups had been replaced with smaller sizes.

The measure may seem comical, but Goldman wants to try anything after its latest quarter ended on Friday with what many analysts predict will be the bank’s second-ever loss in its dozen years as a public company — a disappointment that portends thousands more pink slips and paltry bonus checks.

“Coffee cups are not going to move the needle, but I wouldn’t be surprised to see continued head-count reductions to reflect the new environment,” says Keith Davis, bank analyst at money manager Farr, Miller & Washington. “If they aren’t going to be as profitable going forward, they’re going to find ways to increase profit. Bonuses will also continue to trend lower.”

Other bulge-bracket banks like Morgan Stanley, JPMorgan Chase, Bank of America and Citigroup also have been hit hard as worries about Europe’s fiscal woes, market gyrations and the fumbling economy slow up business.

But the quarter has been a particularly tough one for powerhouse Goldman, whose only other quarterly loss occurred after the collapse of Lehman Brothers.

“The spotlight’s been on Goldman, so I don’t think they’re being as aggressive right now,” says Davis. “That’s not like them.”

Some analysts estimate Goldman could report a third quarter loss of about 20 to 30 cents a share when the bank releases its quarterly results on Oct. 18.

Its outlook beyond that is murky.

“The playing field on which Goldman is going to compete continues to change, and it’s not clear to what extent we will see the government continue to use the bank as a milk cow that’s brought into the dairy to squeeze out some fines and headlines,” says James Ellman, a portfolio manager at hedge fund Seacliff Capital.

Another knock against Goldman is the fat bonuses it continues to pay out to bankers, says Ellman. “To a great extent, Goldman was run for its senior employees before it went public, and I don’t know if that’s really changed. In good times, the partners do very well, and in bad times shareholders do very poorly. It’s not an economic trade I want to take.”

While the next several quarters may be tough for Goldman, “it’s way too soon write their obituary,” says Bert Ely, a bank industry consultant.

“They’ve got a pretty smart crew, and I’m sure they’re scrambling to adapt to these changing circumstances.”

Bad investment revenue

Wall Street firms brought in 40 percent less cash in the third quarter when compared to the second quarter on slower investment activity.

In the red

– 45% JPMorgan

– 42% Morgan Stanley

– 40% Citigroup

– 39% Goldman Sachs

– 37% BofA

Source: Deutsche Bank estimates