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Goldman 2Q tops forecasts
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June 23, 1999: 11:38 a.m. ET
Investment banker posts higher than expected results in reporting debut
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NEW YORK (CNNfn) - Goldman Sachs Group Inc., the investment banker posting its first financial report as a public company, Wednesday said its fiscal second-quarter earnings surged 30 percent, exceeding analysts' forecasts.
Income at the 130-year-old investment bank totaled $624 million, or $1.30 per diluted share on a pro forma basis, for the three months ended May 28. The results exceeded the $1.07-a-share consensus of analysts surveyed by First Call Corp., as well as the $476 million, or $1 a share pro forma, in the year-earlier period.
The pro-forma results - which reflect earnings as if the company had been public for the periods reported -- excluded $2.26 billion in pre-tax costs associated with switching the company from a partnership to a corporation and taking it public, which it did on May 3, and a $200 million charitable donation.
Including those one-time expenses, Goldman (GS) posted net income for the latest quarter of $340 million, or 71 cents a share.
Total revenue for the quarter fell 3 percent to $6.36 billion. Net revenue, which includes interest expense, rose 16 percent to a record $3.47 billion.
"It was a very strong quarter for Goldman, which was what I had expected," said Hal Schroeder, a senior equity analyst with Keefe, Bruyette & Woods in New York. "Their equity trading is what really carried the day, as I suspect it did for many Wall Street firms with good trading floors."
Outstanding performance
Net revenue from trading and merchant banking rose 23 percent to $1.72 billion from $1.40 billion a year earlier. Robust stock market gains and a particularly heavy roster of initial public offerings during the quarter helped Goldman achieve the improvement, Schroeder said.
Strength in its mergers and acquisitions unit and a strong showing in its investment banking activities also helped Goldman post a strong debut quarter, the company said.
Investment banking activity, which includes advising companies on mergers and helping them raise money in financial markets, generated revenue of $1 billion, up 5 percent from a year earlier. Revenue for asset management and securities services rose 17 percent to $749 million.
Leaner and meaner
Also noteworthy was Goldman's so-called compensation ratio, which measures what the company pays in salaries and compensation compared to its total net revenues. That ratio was 52 percent in the latest, down from 54 percent a earlier, suggesting Goldman is getting leaner and meaner as a public entity, Schroeder said.
In the six months ended May 28, Goldman earned $1.35 billion, or $2.81 a diluted share on a pro-forma basis, down from $1.73 billion. Total revenue for the period slipped 2 percent to $12.21 billion.
The higher-than-expected earnings follow on the results of Lehman Brothers Holdings Inc. (LEH), which Tuesday announced second-quarter profits well above Wall Street's expectations. Lehman earned $2.09 a share in its second quarter, compared with the First Call consensus of $1.68 a share.
And analysts are anticipating more stellar results from other Wall Street firms.
"Goldman had a strong quarter, Lehman had a good quarter, and that's what I would expect to see from anyone else on Wall Street who has a good trading operation," Schroeder said. "I expect to see Morgan Stanley do well, as well." Morgan Stanley (MWD) is expected to release its fiscal second-quarter results on Thursday.
Goldman shares were down 2-5/8 to 63-3/8 in mid-morning New York trading. Last month, Goldman sold 15 percent of the company to the public at an initial offering price of $53. 
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Goldman Sachs
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