Goldman Sachs announced a better than expected second-quarter profit of $2.09 billion (£1.07 billion) yesterday, a decline of 11 per cent on the year before, helped by a strong performance in commodities, services to hedge funds and asset management, which offset losses relating to bonds.

Second-quarter net revenues at the world’s biggest securities firm fell by 7.5 per cent to $9.42 billion, as the group took $775 million of writedowns relating to the credit crunch.

Lloyd Blankfein, the chief executive, said: “Given the difficult market conditions, we are particularly pleased to be able to report strong results for the second quarter.

“We are realistic about the market challenges we face, but times of market dislocation also produce opportunities.”

Net revenues, or total revenue minus interest, fell by 2 per cent to $1.69 billion for the period at Goldman’s investment banking division, which includes its advisory and underwriting units.

Net revenues at Goldman’s biggest division - trading and principal investments – fell 16 per cent to $5.59 billion. Within that division, the fixed income, currency and commodities unit recorded a 29 per cent decline in net revenues to $2.38 billion. Meanwhile, asset management net revenues were up 18 per cent to $2.15 billion.

Goldman’s results should put the lid on rumours that emerged last week that the group would report huge write-offs today relating to some of the “hedges” that it had made to offset potential losses on its portfolio of sub-prime-related investments.

The rumours began to circulate last Monday after Lehman Brothers reported a much larger than expected $2.8 billion loss for the second quarter, in part because some of the hedges that it had put in place actually lost money. The bank parted company with Joe Gregory, president and chief operating officer at Lehman since 2004, and demoted Erin Callan, its chief financial officer.

Morgan Stanley is expected to record a 59 per cent drop in its second-quarter profit when it unveils its latest results today. Morgan Stanley has taken about $12.9 billion in writedowns since the middle of last year.

Goldman Sachs also announced an agreement to bail out Cheyne Finance, the structured investment vehicle (SIV) that went into receivership in September. Under the agreement with Deloitte & Touche, the receivers, Goldman effectively takes on the running of Cheyne’s investment portfolio, which it will spin off into an independent, self-financed entity. This deal is expected to trigger a wave of similar transactions among other SIVs – independent, self-financed operations – that have gone into receivership since the credit crunch made lenders wary of them.

Goldman is thought to be working on similar deals with SIVs such as Whistlejacket, formerly run by Standard Chartered, Rhinebridge (previously managed by IKB Deutsche Industriebank), Golden Key and Mainsail, which collectively hold assets worth about $18 billion.

Chris Whalen, of Institutional Risk Analytics, said: “This is a good development, Goldman is trying to clean up the mess, but the overarching question is whether investors can be persuaded to view these kind of vehicles as a viable asset class.”

Goldman Sachs shares fell by $2.65, or by 1.46 per cent, to $179.44.

Profit and loss

$775m

of credit crunch writedowns

$2.09bn

second-quarter profit

Source: Goldman Sachs

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