Today investment bank Goldman Sachs reported net earnings of $8.35 billion for 2010. That's 37.6% lower than the bank's 2009 earnings of $13.39 billion. This news comes alongside some other big banks like JPMorgan and Wells Fargo posting gains over 2009. Is Goldman losing its mojo?
Relative Earnings Weakness
In fact, the relative weakness of Goldman's earnings compared to some of its competitors is easily explained. The reason for its somewhat lackluster results is actually the opposite of the explanation for Wells Fargo's relatively weak first quarter results. At that time, the Wells Fargo's weak Wall Street presence held it back, as trading profits were soaring. In the latter part of 2010, however, the situation reversed. More recently, trading revenue was down, while banks with a big consumer lending business saw gains from loss provisions declining.
One of the major reasons for JPMorgan's strong performance was its credit loss provisions declining by $6.4 billion from 2009 to 2010. Similarly, Wells Fargo's quarter-over-quarter loss provision for its community banking operation was down $2.2 billion. But Goldman doesn't benefit as much from better consumer credit performance, since it doesn't have a giant consumer loan portfolio like banks with large retail arms like Wells and JPMorgan.