Goldman Sachs Q2 earnings dive on hefty legal charge

Large legal costs and weak bond trading due in part to the Greek debt crisis hammered Goldman Sachs's second-quarter earnings, according to the bank's results released Thursday.

Net earnings in the quarter ending June 30 fell by almost half, to $1.05 billion from $2.04 billion in the year-ago period.

Revenues slipped 0.6 percent to $9.07 billion.

The biggest factor in the drop was $1.45 billion in legal costs, largely due to mortgage-related litigation.

The other big weak area was a 28 percent fall in trading revenues for fixed income, currency and commodities to $1.6 billion.

Goldman Sachs chief financial officer Harvey Schwartz said some clients pulled back from markets on fears of a messy Greek exit from the eurozone.

"With all the issues in Greece, liquidity was quite challenging for all of our clients and also for market makers," Schwartz said in an investor conference call.

"The news on Greece has been very positive the last couple of days, so hopefully some of these trends are behind us."

The weak results in bond trading were partially offset by a big rise in equity trading revenues.

Another strong point was financial advisory services amid strong merger and acquisition activity.

Schwartz said advising activity on mergers is "quite robust" and has not been crimped by Greece.

Schwartz said Chinese equity markets remained "pretty fluid" following a volatile ride that has seen the Shanghai stock index fall more than 25 percent since June 12.

The investment bank remains confident in long-term growth in the world's second-biggest economy.

"Our early read is it's not going to have a big impact on the local economy and we don't expect a major change in the focus on liberalization," Schwartz said.

"Given everything China has done, maybe we should expect there are going to be growing pains from year-to-year, but the long-term trends feel okay to us."

Schwartz declined to elaborate on the rise in legal costs. Some analysts said the charge was unexpectedly high.

Goldman is in talks with regulators to pay $2-3 billion to resolve issues related to the financial crisis, according to people familiar with the matter.

Adjusted earnings translated into $1.98 per share, much below the $3.89 projected by analysts.

Shares in Dow member Goldman fell 1.2 percent to $210.47 in mid-morning trade.