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Brokers' 3Q profits down
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September 26, 2001: 12:34 p.m. ET
But Goldman Sachs and Bear Stearns both beat analysts' targets
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NEW YORK (CNNfn) - Two of Wall Street's biggest brokerages, Goldman Sachs and Bear Stearns, posted sharply lower third-quarter results Wednesday, yet both came in well ahead of Wall Street's expectations as they grappled with the slowing economy.
Investment firms have seen profits dwindle this year as the economy slowed, prompting a pullback in underwriting activities spurred by a drop in corporate mergers and initial public offerings.
Individual and institutional investors have also become more conservative as the stock market tumbled.
The Sept. 11 terrorist attacks on the World Trade Center and the Pentagon, which halted trading for four days and added to investors' fears, have only added pressure to most brokerages' bottom lines.
For example, Morgan Stanley (MWD: up $1.27 to $44.07, Research, Estimates) posted a 41 percent falloff in its third-quarter earnings last Friday.
For the quarter ended Aug. 31, Goldman Sachs earned $468 million, or 87 cents a share, down from $824 million, or $1.62 a share, a year earlier. Analysts on average anticipated 81 cents a share, according to earnings tracker First Call.
Third-quarter revenue fell 10 percent to $7.4 billion from $8.2 billion.
Goldman Sachs (GS: Research, Estimates) shares were up 95 cents to $70.98 in midday trading.
The company said the Sept. 11 terrorist attacks on the World Trade Center and the Pentagon would have an immediate impact on its business and delay a recovery, but that its overall financial conditions were not materially affected. It remains confident about the long-term outlook.
"The recent events at the World Trade Center will undoubtedly have a negative impact on investment banking," David Viniar, Goldman's chief financial officer told analysts during a conference call Wednesday. "Although economists believe a U.S. economic recovery will likely be stronger than previously expected, it is clear that any recovery in investment banking will be pushed well into 2002."
Goldman said it is continuing to evaluate the effect of the attacks on fourth-quarter results.
"We are very confident about the long-term outlook for our business, but believe that the immediate impact will be a further weakening in the operating environment and a delay in the economic recovery," Goldman CEO Henry Paulson said. "However, given increased fiscal and monetary stimulus, we anticipate that long-term economic recovery should be more certain and vigorous than previously expected."
Viniar said the company has been trying to offset declining volume in stocks with revenue from fixed-income investments. He added that the firm was looking to strictly manage competition through lower fees and other methods of cost-cutting to improve margins rather than by cutting staff.
However, he said the number of employees was likely to remain flat in the fourth quarter.
Bear Stearns Co. reported third-quarter earnings of $134.6 million, or 95 cents a share, down from $184.4 million, or $1.32 a share, a year earlier. Analysts polled by First Call expected a profit of 90 cents a share.
Revenue declined 5.2 percent to $1.20 billion from $1.27 billion. Bear Stearns (BSC: Research, Estimates) shares were up 51 cents to $47.53 Wednesday.
Bear Stearns reported third-quarter earnings of $134.6 million, or 95 cents a share, down from $184.4 million, or $1.32 a share, a year earlier. Analysts polled by First Call expected a profit of 90 cents a share.
"The market conditions of the third quarter were difficult and those difficulties have intensified early in the fourth quarter," Bear Stearns CEO James Cayne said. "In the face of these challenging times, we would like investors to know that our focus remains on ensuring that our clients receive the high quality service they are accustomed to, running our business as efficiently as possible and further tightening our controls on expenses."
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Capital markets revenue increased 7.7 percent to $874.3 million in the quarter. However, revenue from institutional equities tumbled 31.6 percent to $244.7 million from $358 million a year earlier. Investment banking revenue fell 3.2 percent to $220.4 million. 
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