Goldman Sachs scores big in latest quarter

Wall Street firm earns $3.4 billion, or $4.93 a share helped by equity underwriting activity; results beat analysts' estimates.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By David Ellis, CNNMoney.com staff writer

chart_goldman_sachs_q2.03.gif
What's most important to you when choosing where to live?
  • Good jobs
  • Affordable homes
  • Top schools
  • Low crime
  • Things to do

NEW YORK (CNNMoney.com) -- Goldman Sachs proved that it was well on its way towards making a full recovery from last fall's crisis, after its latest quarterly results shattered even the most bullish of expectations on Tuesday.

Just six months after reporting its first loss as a public company, the New York City-based firm delivered its second straight period of better-than-expected results, this time earning $3.44 billion, or $4.93 a share for the second quarter.

Just a year ago, Goldman Sachs reported a profit of $2.1 billion, or $4.58 per share.

"It was a phenomenal quarter all the way around," said Mark Lane, an equity research analyst who tracks Goldman Sachs for at Chicago-based investment firm William Blair & Co.

Helped by a strong performance within the firm's fixed-income and its broader trading business, much of Wall Street was anticipating a blowout quarter from the investment bank, heading into Tuesday's announcement.

Consensus estimates among analysts polled by Thomson Reuters was for net income of $1.73 billion, or $3.54 a share. But the firm managed to blow past even high-end estimates of $4.65 a share.

Still, Wall Street was reluctant to buy on the news after a big run up in the company's stock just a day earlier. Shares of Goldman (GS, Fortune 500) edged higher in midday trading Tuesday.

The good and the bad. Driving much of the firm's latest performance was its fixed income business, which also deals in trading currencies and commodities. Net revenue in the division surged 186% from a year ago to $6.8 billion.

Strong stock issuance activity during the quarter, particularly among some of the nation's top financial firms, also pushed Goldman's equity underwriting business to record revenue levels.

"We did well across a variety of businesses," said David Viniar, Goldman Sachs' chief financial officer. "It was basic blocking-and-tackling for the firm."

Of course, a smaller field of investment bank competitors certainly didn't hurt either, noted Viniar. With Lehman Brothers and Bear Stearns now gone, Goldman Sachs and others have scooped up much of their rivals' former business clientele.

Still, there were pockets of sluggishness for the firm. Traditional investment banking suffered as deal activity languished, as did revenues at Goldman's asset management and securities services businesses.

The firm also said it took a $426 million charge related to its repayment of $10 billion in money received as part of the government's Troubled Asset Relief Program, or TARP.

A bonus boost? Goldman's latest results, which mark its highest level of profitability in more than a year, come at a time when there has been increased scrutiny about the firm's compensation policies, namely its bonuses.

Last month, the Guardian reported that Goldman is on track to pay record bonuses after a stellar performance during the first half of 2009.

Currently, the pool of funds out of which the company pays bonuses stands at $11.36 billion. Were Goldman able to maintain its current performance during the second half of the year, its bonus pool would exceed the lofty levels reached in 2007, when the company spent $20.2 billion on employee salaries and bonuses.

That year, the firm doled out compensation packages that averaged roughly $661,400 for the more than 30,500 workers the firm employed at the time. And with far fewer individuals employed by the company nowadays, the average pay package could be even larger.

Of course, the firm is no longer bound to government compensation restriction after winning its freedom from TARP last month. But it remains to be seen whether the bonuses could raise eyebrows among regulators or the American public.

Viniar noted that there is nothing his firm could do to prevent such a response, instead pointing out that employee compensation rises and falls with the firm's fortunes. If the second half of the year proved tough for the company, he said, pay packages would fall in tandem.

With Goldman's results now public, Wall Street's attention turns towards the rest of the big name financial firms. Peers JPMorgan Chase (JPM, Fortune 500), Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500) are both set to deliver results later this week, while Goldman Sachs rival Morgan Stanley (MS, Fortune 500) is set to report next Wednesday. To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Sponsors
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.