Goldman Sachs said net earnings in the three months to 30 June slid to $613 million from $3.435 billion in the same period last year, or down to diluted earnings per common share of $0.78, hit by the recent regulatory settlement and the new UK bank payroll tax.

Excluding the impact of the $550 million Securities & Exchange fraud settlement and the UK tax, diluted earnings per common share were $2.75, Goldman Sachs said in a statement today.

Goldman Sachs’s settlement with the SEC, announced earlier in July, centred on claims that it failed to fully inform investors over the sale of a collateralized debt obligation product known as Abacus 2007 ACI. Specifically, the firm had been accused of selling the CDO to investors without telling them that it had been betting against the CDO securities, and had involved John Paulson, the hedge fund investor, in choosing securities he wanted to short-sell. Goldman Sachs has strenuously denied the allegations of wrongdoing.

The settlement, coupled with the UK bank payroll tax of – introduced by the previous Labour government – took the shine off what had been an otherwise relatively solid set of figures. For example, Goldman Sachs pointed out that book value per common share had increased by 1 per cent during the quarter to $123.73.

The bank’s asset management and securities services business reported a fall in net revenues of 11 per cent year-on-year to $1.37 billion, but 2 per cent higher on the first quarter of 2010. Assets under management fell by $38 billion to $802 billion, driven by $24 billion of net outflows, and $14 billion stemming from market falls.

Goldman Sachs became leaner – its ratio of compensation and benefits to net revenues was 43 per cent in the end of June, down from 49 per cent a year before.

The UK government introduced a non-deductible 50 per cent tax on certain financial institutions’ discretionary bonus payments exceeding £25,000 per person under arrangements made between 9 December 2009 and 5 April this year.

Non-compensation expenses rose 44 per cent year-on-year to $2.99 billion in the second quarter, primarily driven by net provisions for litigation and regulatory proceedings of $615 million. That figure includes the $550 million SEC settlement.

The Wall Street firm had a Tier 1 Basel capital ratio of 15.2 per cent at the end of June.