NEWS | Wednesday, 18 June 2008

Goldman Sachs profits top Wall Street expectations

Goldman Sachs, the investment bank that has suffered the least from the tight credit market, reported earnings of US$2.051 billion yesterday, topping Wall Street expectations.
But the earnings were 10 per cent below Goldman’s profit a year ago, and the bank’s Chief Executive Officer (CEO), Lloyd C. Blankfein, said in a statement that he was “realistic about the market challenges we face.”
Goldman is still outperforming most of the financial sector, where firms have taken in excess of US$380 billion in write-downs, an unprecedented reckoning over the value of mortgage investments.
Goldman limited its losses from the mortgage meltdown by betting early that housing would drop. And the bank’s profit may be helped this year by its large business in commodities trading — both making its own bets and servicing those of other investors.
“Given the difficult market conditions, we are particularly pleased to be able to report strong results for the second quarter,” Blankfein said.
The company’s profit of US$4.58 a share surpassed analysts’ expectations of US$3.42. Profit in the quarter a year ago was US$2.29 billion, or US$4.93 a share. Revenue fell to US$9.422 billion, down 7 per cent from the $10.18 billion earned in the second quarter a year ago.
The bank’s strongest growth was in its asset management unit, where revenues were $1.221 billion, up 10 per cent from the period a year ago.
The chief financial officer, David Viniar, said in an interview that there was a distinct increase in liquidity in the mortgage markets. Goldman was actively trading residential and commercial mortgages, he said.
The bank sold off US$2.5 billion in commercial mortgages and US$4 billion net in residential mortgages. The main reduction was in prime mortgage loans, Viniar said.
Goldman has been actively repurchasing its stock for some time, but the firm intentionally slowed purchases this quarter, Viniar said, in favour of preserving its capital and liquidity ratios.
The bank made less money in commodities this quarter than in the first quarter, Viniar said, though the business was still strong.
With some humour, Viniar said that one person this morning told him the earnings were ho-hum this morning to which he said: “boring is good.”
Goldman’s shares traded up 12 per cent in the last three days, as investors anticipated another quarter of good news.
Call options — bets that a stock’s price will increase — were also purchased in large volume on Monday. Company’s shares were up less than one percent yesterday morning.
“Everything was just a little stronger than we expected,” Michael Hecht, the brokerage analyst at Banc of America Securities, said.