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Goldman profit doubles, but questions loom

Goldman Sachs' second-quarter profit was $1.9 billion after

Goldman Sachs' second-quarter profit was $1.9 billion after payments to preferred shareholders, compared with $927 million a year ago, and revenue was $8.6 billion, up from $6.6 billion a year ago. (March 15, 2012) Credit: AP

Goldman Sachs said Tuesday that its second-quarter profit doubled and revenue jumped 30 percent, helped by gains in stock and bond underwriting and the bank's own investments.

But the hot topic for analysts who follow the bank was a set of impending capital rules and how they might affect the powerful New York investment bank.

Goldman's stock dipped moments after the market opened, just as chief financial officer Harvey Schwartz faced a barrage of questions about the capital rules and other hard-to-predict factors that could affect the bank's future earnings, including how clients might react to rising interest rates.

Capital requirements have been the topic du jour as big financial companies have reported second-quarter earnings over the past few days. The consternation started last week, when U.S. regulators said they were considering requiring big U.S. banks to hold greater amounts of capital.

Regulators in the United States and around the world have been raising capital requirements since the financial crisis, saying it will give banks a cushion in troubled times. Banks have protested, saying it will constrain them from lending.

The talk around capital requirements also underscores a shift in the industry, where even profitable banks are focused on cutting costs, both to deal with an uncertain economy and stricter government regulations. Goldman's total assets were down about 1 percent over the year and it also cut about 2 percent of its staff, or 600 jobs.

Unlike JPMorgan Chase on Friday and Citigroup on Monday, Goldman did not release estimates of how close its current capital levels would come to meeting the proposed rules on the so-called leverage ratio. Schwartz said the bank was comfortable with its position and knew how to adapt to changing environments. But he also said it was too early to release specifics. He noted that the rules were far from final and that the bank hadn't had time to go through the proposal with "the kind of diligence that we would normally want."

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