Goldman Earnings and Revenue Fall

Battered by volatile markets and the impact of a costly settlement with the Securities and Exchange Commission, earnings at Goldman Sachs dropped 83 percent in the second quarter to 78 cents a share, making it the worst quarter for the giant investment bank since the depths of the financial crisis in late 2008.

Revenue fell 36 percent to $8.84 billion from $13.76 billion in the quarter a year ago.

Net income was $613 million, down from $3.43 billion or $4.93 a share, in the quarter a year ago.

Still, the investment bank’s profit was more than the amount it agreed to pay last week to settle a fraud suit brought by the S.E.C. in April. The suit accused Goldman of misleading institutional investors who bought financial products linked to subprime mortgages that ultimately defaulted.

Goldman did not admit wrongdoing but agreed last week to provide better disclosure to investors in mortgage securities as part of the $550 million settlement, one of the largest ever for a Wall Street firm.

The earnings include $1.15 billion in special charges — $550 million for the S.E.C. settlement and $600 million for a British bank payroll tax. Excluding these charges, earnings were $2.75 a share.

Analysts had already factored in the charge for the British bonus tax, but nevertheless the results were weaker than Wall Street expected.

Goldman shares were down in morning trading but rebounded with the broader market, finishing up more than 2 percent.

While earnings forecasts for the second quarter, which ended June 30, had been declining in recent weeks, “they missed the consensus” said Guy Moszkowski, an analyst with Bank of America Merrill Lynch. “It’s rare for them to miss, but it does happen.”

“It was a very, very bad operating environment,” he said. “The trading results were much weaker but still respectable. They made $4.4 billion in fixed-income trading, hundreds of millions better than the peer group.”

In equity trading, Goldman’s results fell more dramatically as the stock market dived in recent months, and clients ducked for cover. The bank was also hurt because as clients made bets that volatility would surge, it took the other side of the trades, leaving it on the losing end when volatility did in fact increase.

The lawsuit overshadowed Goldman’s outsize profits in the first quarter, when buoyant results in trading lifted earnings to $3.46 billion. Now, as markets weaken, Goldman shares remain down more than 20 percent from where they were before the S.E.C’s suit was filed in April.

On a conference call with reporters, the focus remained on the S.E.C’s accusations and the after-effects of the settlement. Goldman’s chief financial officer, David A. Viniar, struck an apologetic tone when it came it to the case but insisted Goldman’s once-sterling image had not been tarnished.

“We acknowledge that we made a mistake, we regret that we made a mistake and we know it was not good for us,” he said. “I can’t tell you if there were calls that we didn’t get, that’s impossible to measure. We feel that our clients have been pretty supportive of us, so far as we can tell.”

Mr. Viniar said he did not foresee any changes in Goldman’s top ranks as a result of the settlement.

Analysts had been expecting net income of $1.23 billion, or $2.03 a share, on revenues of $8.98 billion, according to Thomson Reuters.

“The market environment became more difficult during the second quarter and, as a result, client activity across our businesses declined,” the chief executive, Lloyd C. Blankfein, said in a news release. “Looking ahead, we remain focused on helping our clients to raise capital, manage risk and invest for the future, which are all important to economic growth.”

Other financial giants, like JPMorgan Chase, Bank of America and Citigroup, also reported disappointing results from their trading operations when they announced second-quarter results last week.

Tuesday’s results represent a rare miss for Goldman’s vaunted traders, who have helped make the firm Wall Street’s most powerful — and profitable — investment bank. But few traders were prepared for the sharp swings of the market in the spring, when exchanges around the world were roiled by fears about European government borrowing and the specter of a default by Greece. Closer to home, the “flash crash” in May, when the Dow dropped nearly 1,000 points in less than 30 minutes, also unnerved investors.

In addition, Goldman said it had set aside 43 percent of revenue in the first half of 2010 for employee salaries and bonuses, down from 49 percent for the same period a year ago.