Goldman Sachs Earnings Collapse Seen as Wells Fargo Heads for Record Year

By Christine Harper and Michael J. Moore
Bloomberg
Oct. 12, 2011

Goldman Sachs Group Inc. (GS), whose shares have fallen 43 percent this year, may report its lowest quarterly profit since the 2008 financial crisis. Far from Wall Street, Wells Fargo & Co. (WFC) is headed for record earnings.

Third-quarter U.S. bank earnings, which kick off with JPMorgan Chase & Co. (JPM) on Oct. 13, will show that investment- banking businesses such as bond trading and merger advice declined, while retail operations like mortgage lending prospered, according to analysts including Richard Staite at Atlantic Equities LLP in London.

It’s a reversal from 2009 and early 2010, when rising markets and a perfect trading record propelled New York-based Goldman Sachs to its highest profits ever, as commercial lenders including SunTrust Banks Inc. (STI) in Atlanta charged off billions of dollars of delinquent mortgages.

“You’re going to see a big divergence between very poor earnings from pure capital-markets businesses and quite solid performance from the pure retail banks, particularly those that have a mortgage-origination business,” said Staite.

Slowing economic growth and heightened worries about European sovereign debt have weighed on bank stocks all year. None of the 24 members of the KBW Bank Index (BKX) has posted a gain in 2011, and the worst performer, Bank of America Corp. (BAC), is down 53 percent. A jump in borrowing costs at some banks, including New York-based Morgan Stanley (MS), began to subside last week as investors became more optimistic that European policy makers would solve the region’s sovereign debt and banking crisis.

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