Goldman Sachs' Earnings Hurt By Litigation Expenses

It's the price of doing 'God's work,' as the bank's CEO once famously termed their business. And given that most of it is related to Goldman's role in the financial crisis almost eight years ago, that's a manageable 'cost of goods sold' over the time period in question. JL

Kaja Whitehouse reports in USA Today:

During the quarter, the firm recorded a $1.45 billion provision for "mortgage-related litigation and regulatory matters," which reduced earnings by $2.77 a share.
Investment bank Goldman Sachs said its earnings tumbled in the three-months ended in June due to litigation expenses that shaved $2.77 a share from its second-quarter profit.
The bank earned $1.05 billion, or $1.98 a share, in the second-quarter on revenue of $9.07 billion. Last year Goldman reported earnings of $4.10 a share on revenue of $9.12 billion.
Analysts had expected earnings of $3.85 a share on revenue of $8.74 billion, according to data from FactSet.
During the quarter, the firm recorded a $1.45 billion provision for "mortgage-related litigation and regulatory matters," which reduced earnings by $2.77 a share.
Without those expenses, Goldman would have posted earnings of $4.75 a share, beating analysts' expectations.
Goldman put the money aside amid "active discussions" with the Residential Mortgage-Backed Securities (RMBS) Working Group, a government organization to investigate misconduct that contributed to the financial crisis through the pooling and sale of RMBS securities, Goldman CFO Harvey Schwartz said in a conference call with investors and analysts.
This is the first time Goldman has taken a reserve tied to discussions with the RMBS Working Group, which is backed by the Justice Department, the U.S. Securities and Exchange Commission and New York State Attorney General Eric Schneiderman.
"We have not historically taken reserves for RMBS working group until we got information in this quarter that led to" the provision, Schwartz said.
Litigation expenses in the aftermath of the financial crisis have been an on-going headache for bank investors, who have suffered volatile earnings as a result of some record-breaking fees to settle allegations of wrongdoing.
Citigroup had the opposite experience when it reported earnings Thursday. In last year's second quarter, the bank saw expenses skyrocket when was hit by a $3.8 billion charge tied to a mortgage settlement with the Justice Department. As a result, this year, the bank's profit jumped due to lower expenses.

Goldman said revenues from its investment banking business came in at $2.02 billion, or 13% higher than the second quarter of 2014. Revenues from its financial advisory business were also higher at $821 million -- a 62% increase over last year.
Revenue from trading, however, dropped 6% to $3.60 billion amid a decline in sales on fixed income, currency and commodities trades. Such trades earned the bank $1.60 billion for the second quarter, a 28% drop over the second quarter of 2014. The drop in fixed-income and currency trades was offset, however, by a gain of 24% in equities trading, resulting in revenue of $2 billion over the second quarter of 2014.
Overall, Goldman's results fell short of last quarter when it handily beat Wall Street's expectations for its first-quarter earnings, driven by a 73% uptick in trading revenues over the previous quarter.

Goldman's trading business buys and sell securities all day long, usually on behalf of large institutional investors like hedge funds. Second-quarter results in this unit were dampened by a tougher trading environment due to concerns about Greece separating from the European Union as well as volatility in China, Goldman executives said on the company's conference call Thursday.
The stock dipped lower in early trading, down 1% to $210.83 a share.
Shares of Citigroup, by contrast, traded up 2.6% to $57.94 a share.