Gloom as Wall Street giants post poor results

Published on Monday 18 July 2011 22:36

The banking sector suffered another blow yesterday when two of the US's financial giants reported unfavourable results.

Bank of America posted losses of $8.8 billion (5.5 billion) - the biggest quarterly loss in its history - as a result of an $8.5bn settlement with mortgage-bond investors.

And investment bank Goldman Sachs said it earned $1.05bn in its second quarter which, although more than twice the amount in the same period a year ago, was much less than analysts had expected.

Goldman, once Wall Street's largest bond trading house, reported its sixth consecutive quarterly decline in that part of the business.

Goldman attributed the trading weakness to insipid client activity and a lack of clear market direction. Unlike larger rivals, Goldman does not have a commercial banking operation to bulk up revenue or the flexibility to boost its earnings by drawing money from huge loan loss reserves.

But analysts questioned whether Goldman and its Wall Street rival Morgan Stanley are losing ground to larger commercial banks, which are traditionally less nimble in trading than the investment banks.

Chief financial officer David Viniar said Goldman was likely to lay off about 1,000 employees by the end of the year, or about 3 per cent of its staff, as part of an ongoing cost-cutting campaign.

Bank of America's loss was widely expected after the bank announced a settlement last month aimed at resolving issues from its disastrous 2008 acquisition of mortgage lender Countrywide Financial.

Until 2008, Countrywide played a leading role in generating mortgages that were bundled into securities and re-sold to investors.

The bank's credit losses declined during the quarter and some businesses improved their performance, but its loan book shrank.

Ben Critchley, a sales trader at IG Index, said the results from the American banks diminished otherwise positive sentiment on the London market yesterday, dampening the recovery staged by UK banks.