Goldman Sachs First-Quarter Profit Tops Analysts’ Estimates
Goldman Sachs CEO Lloyd Blankfein
Andrew Harrer/Bloomberg
Lloyd Blankfein, chairman and chief executive officer of Goldman Sachs Group Inc.
Lloyd Blankfein, chairman and chief executive officer of Goldman Sachs Group Inc. Photographer: Andrew Harrer/Bloomberg
April 19 (Bloomberg) -- Jason Tyler, senior vice president at Ariel Investment LLC, talks about Goldman Sachs Group Inc.'s first-quarter profit reported today and business outlook. The fifth-biggest U.S. bank posted a 21 percent drop in earnings, a smaller decline than analysts estimated. Net income fell to $2.74 billion from $3.46 billion a year earlier, the company said today in a statement. Tyler speaks with Carol Massar, Erik Schatzker and Scarlet Fu on Bloomberg Television's "In the Loop." (Source: Bloomberg)
April 19 (Bloomberg) -- Laurence Fink, chief executive officer of BlackRock Inc., talks about Standard & Poor's decision to cut its outlook on U.S. debt to "negative." Fink, speaking with Erik Schatzker and Deirdre Bolton on Bloomberg Television's "InsideTrack," also discusses the bond market and the financial industry. (Source: Bloomberg)
April 14 (Bloomberg) -- Senator Carl Levin, a Democrat from Michigan, talks about Goldman Sachs Group Inc.'s communication to clients and Congress about the firm's bets on securities tied to the housing market. He speaks with Carol Massar and Matt Miller on Bloomberg Television's "Street Smart." (Source: Bloomberg)
Goldman Sachs Group Inc. (GS), the fifth-biggest U.S. bank, posted a 21 percent drop in first- quarter profit, a smaller decline than analysts estimated, as fixed-income trading revenue more than doubled from a weak fourth quarter.
Net income fell to $2.74 billion from $3.46 billion a year earlier, the New York-based firm said today in a statement. Earnings per share, which includes the cost of preferred dividend payments to Warren Buffett’s Berkshire Hathaway Inc., dropped to $1.56 from $5.59. The average estimate of 16 analysts surveyed by Bloomberg was for 81 cents.
Under Chairman and Chief Executive Officer Lloyd C. Blankfein, 56, Goldman Sachs has relied on fixed-income, currencies and commodities trading for the biggest piece of its revenue. After reaching a record in 2009, earnings failed to attain their year-earlier mark in the last four quarters as competition and regulation increased. Wall Street’s fixed-income trading revenue in the fourth quarter dropped to the lowest level since the financial crisis.
“Trading was good this quarter, not bad,” Brad Hintz, an analyst at Sanford C. Bernstein & Co. who recommends buying Goldman Sachs shares, said before the earnings were reported. “There’s been a lot of concern in the marketplace about whether what we saw in the fourth quarter was an early warning of a continuing slowdown in fixed income.”
Share Performance
Goldman Sachs rose to $155.80 at 8:15 a.m. in New York trading, from $153.78 at the close yesterday. The stock has performed worse this year than rivals including New York-based JPMorgan Chase & Co. (JPM) and Morgan Stanley (MS) and Zurich-based Credit Suisse Group AG. (CSGN)
Net revenue fell 7 percent to $11.9 billion, the statement showed. Compared with last year’s fourth quarter, revenue increased 38 percent. Annualized return on average common shareholders’ equity, a measure of how well the firm reinvests earnings, decreased to 12.2 percent from 20.1 percent in the first quarter of 2010.
First-quarter revenue from trading fixed-income, currencies and commodities dropped 28 percent to $4.33 billion from $6.02 billion a year earlier, and jumped 164 percent from $1.64 billion in the fourth quarter.
“Looking ahead, we continue to see encouraging indications for economic activity globally,” Blankfein said in the statement.
JPMorgan Chase
JPMorgan, the second-biggest U.S. bank by assets, reported last week that its fixed-income trading revenue fell 4 percent to $5.24 billion from a year earlier, and was up 82 percent from the fourth quarter.
Equities-trading revenue at Goldman Sachs fell 7 percent to $2.32 billion from $2.49 billion a year earlier and was up from $2 billion in the fourth quarter.
Revenue from investing and lending, the firm’s second- biggest segment after trading last year, climbed 37 percent to $2.71 billion from $1.97 billion a year earlier and compared with $1.99 billion in the fourth quarter. Investing and lending includes Goldman Sachs’s holding in Industrial & Commercial Bank of China (1398) Ltd. as well as stakes in companies and other assets held by units like the Special Situations Group or Principal Investment Area.
Compensation and benefits, the company’s largest expense, fell 5 percent to $5.23 billion from $5.49 billion a year earlier and accounted for 44 percent of revenue.
Litton Business
Non-compensation expenses rose 23 percent to $2.62 billion, driven in part by an impairment charge of about $220 million on assets held for sale, the firm said. The primary cost related to the firm’s Litton Loan Servicing LP unit, a residential mortgage-servicing company that the firm has said it is trying to sell.
Investment-banking revenue increased 5 percent to $1.27 billion from $1.2 billion. Advisory revenue, which includes fees for takeover advice, declined 23 percent to $357 million from $464 million a year earlier, while fees from debt underwriting climbed 32 percent to $486 million and equity underwriting revenue advanced 15 percent to $426 million.
The firm ranks third this year among advisers on announced mergers, down from the top spot at the same point last year, according to data compiled by Bloomberg.
Goldman Sachs tops underwriters of equity and equity-linked offerings globally so far this year and is fifth among managers of high-yield debt sales worldwide, up from seventh at the same point last year, Bloomberg data show.
Backlog Grows
Goldman Sachs’s backlog of investment-banking transactions increased compared with the end of 2010, the company said.
Revenue from investment management rose 16 percent to $1.27 billion from $1.1 billion a year earlier. Assets under management were unchanged at $840 billion.
Blankfein, who is approaching his fifth anniversary as Goldman Sachs’s chairman and CEO, is grappling with new capital requirements drawn up by the Basel Committee on Banking Supervision along with limits on the firm’s proprietary trading and investments in hedge funds and private-equity funds imposed by the U.S.’s Dodd-Frank financial-overhaul law.
In a filing on March 1, Goldman Sachs estimated its “reasonably possible” losses from legal claims could reach $3.4 billion as the firm faces suits related to its activities before, during and after the financial crisis.
Last week, Senator Carl M. Levin, the Michigan Democrat who leads the Permanent Subcommittee on Investigations, issued a report based on two years of investigation into the financial crisis and accused Goldman Sachs of misleading clients and Congress. Goldman Sachs has denied that it misled anyone.
To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net
To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.
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