For once, Goldman Sachs did not blow the lights out. In fact, net revenues and earnings both fell 20 per cent or more sequentially in the second quarter, and were broadly flat year on year. Bear Stearns, meanwhile, saw its underlying earnings fall by close to 10 per cent on both counts.

Is it time to run for the hills? Hardly. Take Goldman. The superficially weak numbers really reflect how tough it is to keep beating the stellar results of recent quarters – as the bank has ridden the wave of global liquidity, perfect trading conditions and continued rapid growth of new trading areas such as commodities. Goldman remains the best positioned investment bank in terms of its global reach and the spread of businesses.

But if you keep raising the bar, you eventually come in below it. And the hit to revenues from a slump in subprime mortgages is a reminder that, however good your traders, revenues come under pressure in tough markets. Apart from anything else, volumes fall, as Bear found in its powerful mortgage business.

Bear’s heavy exposure to US mortgages has, rightly, weighed heavily on its share price. It now trades on about 1.6 times book value. That is a big discount to the other mortgage heavyweight Lehman, which has a far broader spread of businesses and a more significant international presence. And it is way behind Goldman, on about 2.7 times.

Outside Goldman’s huge fixed income, currency and commodities trading business, other areas such as asset management and investment banking are humming. Goldman is now trading towards the top of its historical valuation range, enjoying returns on equity at 27 per cent. Investors should beware of starting to believe that the bank’s performance has become fundamentally detached from the cyclical markets that it operates in.

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