WALL STREET- And the Mighty Shall Fall, Goldman Sachs

"Goldman Loss Offers a Bad Omen for Wall Street" b SUSANNE CRAIG, New York Times 10/18/2011

Excerpt

Goldman Sachs, once Wall Street’s highest flier, has been grounded, and it does not bode well for the rest of the financial industry or the New York City economy that depends on it.

The bank, both envied and loathed for its ability to churn out huge profits year after year, reported a quarterly loss on Tuesday — its first since the financial crisis and only its second since going public in 1999.

The misstep by the financial leader speaks to what could be a more lasting shift on Wall Street, which has been steadily retrenching over the last 12 months. While protesters a few blocks away were denouncing greed and “too big to fail” banks, the institutions themselves were coming to grips with the current diminished reality.

Banks, required by regulators to discontinue high-profit businesses like proprietary trading, reduce borrowings and hold more capital, may no longer be able to produce the supercharged earnings that were common before the financial crisis.

Although Wall Street has not changed in some significant ways — top executives are still receiving huge pay packages and its lobbyists continue to have sway in Washington — the industry is facing forces of change unlike anything since the Great Depression. Trading operations are muted. Risk-taking is tempered. And boring businesses are back in vogue.

“These firms are going back to the traditional investment banking model of the 1980s and early 1990s,” said Tom Marsico of the mutual fund firm Marsico Capital Management, once a large owner of financial stocks who shed investments in Goldman and other banks this year.

Wall Street is feeling the pinch. Last week, JPMorgan Chase reported that earnings dropped by 4 percent in the latest period. Both Bank of America and Citigroup booked banner profits. But much of those results were attributed to one-time accounting gains, rather than improved fundamentals.

Goldman, which has been known for its prowess in trading, has found itself buffeted by the choppy markets and economic turmoil. While the firm posted decent results in equity trading and investment management, it lost nearly $3 billion on its investments in stocks and bonds, more than offsetting the pockets of strength.