"It's a pretty significant slowdown in their overall business: Investment banking revenue was down 36 percent year over year, and fixed income, currency, and commodity trading was down 35 percent," Walter Todd, portfolio manager at Greenwood Capital Associates, told Reuters.
"We've grown accustomed to Goldman bucking the trends in these businesses, but this quarter it seems like maybe they're more susceptible to broader industry issues," he added. "Maybe Superman is turning into Clark Kent."
Shares of Goldman Sachs traded down about 1.1 percent in early market trading Tuesday. Get real-time quotes for Goldman Sachs here.
"The market environment became more difficult during the second quarter and, as a result, client activity across our businesses declined," said Lloyd Blankfein, CEO of Goldman Sachs in a prepared statement.
"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," he continued.
Trading, Underwriting Revenue
Fixed income trading revenue, which powered the bank's rebound from the financial crisis, fell to $4.4 billion from $6.8 billion a year earlier.
Goldman historically has had revenue from its bond, currency and commodities trading business that beat analysts' forecasts. Now, those revenues are slipping as market volatility replaced the steady gains seen through most of 2009 and earlier this year.
"This was really driven by a lack of activity by our clients," Viniar said. Market volatility in the second quarter and concerns about financial regulation and mounting government debts in Europe kept many customers out of the market, he said.
He warned that if customers remain nervous about athe markets, revenue and earnings could remain low in the coming quarters.
Investment banking revenue declined to $917 million from $1.4 billion. Although merger advisory revenue rose 28 percent to $472 million, debt and equity underwriting revenue fell 58 percent to $445 million.
Equity trading revenue fell 62 percent to $1.2 billion.
By one measure, the bank took less trading risk during the quarter. Its value-at-risk, or the maximum possible losses on 95 percent of the trading days during the quarter, fell to $136 million from $245 million in the same quarter of 2009. The second quarter 2010 figure was the lowest in three years.
As Goldman's earnings swung lower, so did its set-aside for compensation. The firm slashed its compensation and benefits expense to $3.8 billion from $6.6 billion a year ago.
—Reuters & AP contributed to this story.