The juggernaut continues as Egan Jones exposes a key issue we have been discussing: namely that in the absence of actual trading, banks, which can no longer rely on Net Interest Margin, will have to get smaller, leaner and more efficient, or else lose some of the competition. Such as Bear. Such as Lehman. Maybe, even, such as Knight.
8/10/2012: Goldman Sachs Group Inc/The: EJR lowered A- to BBB+ (S&P: A-) (GS)
Synopsis: Dodging a bullet is the good news; the bad news is weaker results, concerns over proprietary positions, and the higher potential for losses. The DoJ's decision not to pursue GS for its role in the 2008 financial crisis is good news, however operating results for the June 12 quarter have weakened. Net revenues declined by 9% from $7.2B to $6.6B. Investment banking revenues were down 14% YoY (up 4% QoQ), with significant declines in equity underwriting. Inst Client Svc were up 11% YoY with the largest increase in mortgage securities and commodities transactions. Investing and Lending was down 80% YoY (down 89% QoQ) and Investment Management was up 5% YoY (up 13% QoQ). The major issues facing GS is the cost of complying with the Volker rule and a still weak IB and trading environment. We are downgrading.