Goldman Profit Will Be Biggest Bank Surprise, ISI Says

Goldman Sachs Group Inc. (GS) probably will post a third-quarter profit that exceeds Wall Street estimates more than that of any other big bank, according to International Strategy & Investment Group LLC.

Gains on the firm’s own investments and revenue from underwriting and trading debt will help New York-based Goldman Sachs earn $2.70 a share, ISI analysts led by Ed Najarian said yesterday in a research note. The average estimate of 25 analysts surveyed by Bloomberg is $2.27.

JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC), ranked first and fourth by assets among U.S. banks, are set to kick off the industry’s third-quarter earnings season tomorrow. Goldman Sachs, the fifth-largest bank and the one that gets the highest percentage of revenue from trading, is scheduled for Oct. 16.

“We expect most large banks to beat” earnings-per-share, or EPS, estimates, Najarian wrote. “The main drivers of EPS upside should be stronger than expected mortgage origination revenue and debt capital markets revenue.”

Najarian predicts New York-based JPMorgan will report earnings per share of $1.20 and San Francisco-based Wells Fargo 88 cents, both one cent better than the average estimate of analysts in the Bloomberg survey.

JPMorgan and Citigroup Inc. (C), the third-largest U.S. lender, offer the biggest potential share increases from third-quarter results, according to Najarian. That’s because both stocks are valued at 8 to 9 times their estimated “core” annual earnings, which excludes one-time gains and losses, he wrote. Citigroup may earn $1.01 a share in the quarter, beating the average estimate by 4 cents, according to the note.

Goldman Sachs’s stock, which has climbed 14 percent since the end of August, already factors in higher profit, Najarian wrote. If third-quarter profit of $2.70 a share is annualized to $10.80, the stock is valued at 11.1 times earnings.

JPMorgan’s own bank research team, led by London-based Kian Abouhossein, also published a note yesterday raising its estimates for third-quarter revenue from investment banking and fixed-income trading and recommended owning a higher weighting in banks tied to those activities.

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.