Goldman Sachs: $1.5B profit half last year's take

NEW YORK (CNNMoney.com) -- Even during these turbulent times on Wall Street, Goldman Sachs Group Inc. managed once again to make a tidy profit in the first quarter - $1.5 billion - though it paled in comparison with last year.

The company has largely managed to stay ahead of its rivals as they all struggle with the fallout from the subprime mortgage meltdown. Just two days ago, the global credit crisis claimed its largest victim, Bear Stearns Cos., (BSC, Fortune 500) one of the largest players in the mortgage market, which was scooped up by JPMorgan Chase (JPM, Fortune 500) for a mere $2 a share, or a 97% discount.

On Tuesday, Goldman Sachs reported net revenue of $8.3 billion and net earnings of $1.5 billion, or $3.23 per share, for the quarter ended Feb. 29. This was well above analysts' consensus estimates of $7.5 billion in revenue and $1.2 billion in net income, or $2.58 per share.

Goldman Sachs (GS, Fortune 500) closed at $175.59, up 16.3%

The firm's net losses on residential mortgage loans and securities totaled approximately $1 billion as the crisis that began in the subprime sector last year spread to borrowers of better credit backgrounds, said Chief Financial Officer David Viniar, in a conference call. During the quarter, mortgage assets backed by loans to prime and Alt-A borrowers, generally made to borrowers who have higher credit scores but lack all the needed documentation, dropped in value. Declines in Goldman Sachs' commercial real estate portfolio did not have a material impact on the company's financials, he said.

In addition, Goldman Sachs reported a loss of about $1 billion related to leveraged loans. Analysts had expected to see losses in the company's leveraged loan portfolio, which is one of the largest on Wall Street.

Net income, however, was shaved by more than half from the same period a year ago, when the company earned a record $3.2 billion, or $6.67 a share. At that time, the firm was powered by record growth in its investment banking, equity, fixed income, currency and commodities businesses.

But this quarter, the Goldman Sachs saw a 32% decline in investment banking revenue and a 46% percent drop in its trading and principal investments division. Its asset management and securities services, however, saw a 28% increase in revenue thanks to higher fees. Goldman Sachs increased its assets under management by $5 billion to $873 billion, mainly from an influx of funds to money market assets.

"Market conditions are clearly very difficult," Chief Executive Lloyd Blankfein said, in a statement. "But we saw strong customer activity across many of our franchise businesses in the first quarter. Although market conditions present many challenges at the moment, they also offer considerable opportunities."

Goldman Sachs has more than enough liquidity to meet its financial operations, Viniar said. Firms' liquidity has been of concern, especially after Bear Stearns' demise began with a bank run.

"In my nine years of being CFO, we've never had a stronger liquidity position than we have right now," Viniar said.

Tuesday's report showed that Goldman Sachs can still produce profits even in a weak market, wrote David Hendler, analyst at CreditSights research firm.

"While Goldman's beat was partly predicated on significantly reduced expectations, there were numerous bright spots that should help alleviate somewhat investor concerns in the wake of the rapid decline of Bear Stearns," Hendler said.

Goldman Sachs rival Lehman Brothers (LEH, Fortune 500) reported lower quarterly earnings Tuesday that topped forecasts, despite taking $1.8 billion in writedowns across its mortgage and loan portfolio. The brokerage, which has been under siege in recent days because of concerns about its balance sheet, said it maintained a "strong liquidity position." Net income at the bank fell 57% to $489 million, or 81 cents a share. Revenue fell 31% to $3.5 billion.

"Both of these companies let us know the system is working," said Ralph Cole, senior vice president of research at Ferguson Wellman Capital Management, a Portland, Ore. money management firm. "It's tough but it's working."

Morgan Stanley (MS, Fortune 500) issues its first-quarter report Wednesday.