- Bank Channel
Goldman Profit Exceeds Analysts’ Estimates on Investments
by: Christine Harper
Wednesday, January 16, 2013
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(Bloomberg) -- Goldman Sachs Group Inc., the fifth- biggest U.S. bank by assets, said quarterly profit almost tripled as gains in the value of the firm’s own investments contributed to the first year of revenue growth since 2009.

Fourth-quarter net income surged to $2.89 billion from $1.01 billion a year earlier, according to a statement today from the New York-based firm. Earnings for common shareholders, which include the cost of preferred stock dividends, rose to $2.83 billion, or $5.60 a share, from $978 million, or $1.84. The average estimate of 26 analysts surveyed by Bloomberg was for $3.66 a share, with predictions ranging from $2.56 to $4.80.

Chief Executive Officer Lloyd C. Blankfein, 58, has undertaken a $1.9 billion expense-reduction effort since mid- 2011 and said he expected earnings growth to resume when the economy and markets improved. A stock-market rebound and a $500 million profit from selling a hedge fund-administration unit helped revenue recover from the lowest first half since 2005.

“The big question is how do they continue to transition away from being a trading business to other ways of making money,” Benjamin B. Wallace, an analyst at Westborough, Massachusetts-based Grimes & Co., which oversees $1.1 billion, said before results were released. “How much of their own capital are they going to continue to be investing going forward?”

Stock Rises

JPMorgan Chase & Co., the biggest U.S. bank by assets, reported earlier today that 2012 was its third straight year of record profit. Bank of America Corp., the second-largest lender, and No. 3 Citigroup Inc. are set to release results tomorrow. Morgan Stanley, the sixth-biggest bank, is due on Jan. 18.

Goldman Sachs advanced 2.8 percent to $139.40 at 8:08 a.m. in New York. The stock had gained 6.3 percent this year through yesterday after advancing 41 percent in 2012. The company raised its dividend twice last year, increasing the quarterly payout to 50 cents a share from 35 cents.

Return on average common stockholders’ equity, a measure of how well the firm reinvests shareholder money, rose to 10.7 percent in 2012 from 3.7 percent in 2011. Tangible book value per share, an estimate of how much the company would be worth in liquidation, climbed to $134.06 as of Dec. 31 from $119.72 a year earlier.

‘Superior Returns’

“The firm’s strategic position provides a solid basis on which to grow and generate superior returns,” Blankfein said in the statement.

Full-year revenue jumped 19 percent to $34.2 billion from $28.8 billion in 2011 and net income for 2012 rose 68 percent to $7.48 billion from $4.44 billion. Net earnings for common stockholders increased 191 percent to $7.29 billion, or $14.13 a share, from $2.51 billion, or $4.51, in 2011.

Compensation, the firm’s biggest expense, climbed 6 percent to $12.9 billion and amounted to 38 percent of revenue for 2012, down from 42 percent a year earlier.

The cost of paying employees’ salaries, bonuses, deferred stock awards and benefits was equivalent to $399,506 for each of Goldman Sachs’s 32,400 employees as of Dec. 31. A year earlier, the compensation expense was equal to $367,057 for each of the 33,300 people employed at the time.

Fourth-quarter revenue rose 53 percent to $9.24 billion from $6.05 billion a year earlier and total operating expenses in the period increased 3 percent to $4.92 billion from $4.8 billion.

Hedge Funds

Investing & Lending, which includes gains and losses on Goldman Sachs’s own investments in stocks, debt, real estate, private equity and hedge funds, as well as loans, recorded $1.97 billion in fourth-quarter revenue, up from $872 million a year earlier. For the full year, the segment generated $5.89 billion, an increase from $2.14 billion in 2011.

Investing & Lending includes Goldman Sachs’s stake in Industrial & Commercial Bank of China Ltd., that country’s biggest lender, as well as Facebook Inc., operator of the world’s largest social network. The segment also includes profits or losses from the Special Situations Group, a proprietary investing unit led globally by Hong Kong-based Jason M. Brown, and divisions including the Multi-Strategy Investing unit.

Revenue from sales and trading, led globally by New York- based Harvey M. Schwartz, Pablo J. Salame and London-based Isabelle Ealet, climbed 42 percent to $4.34 billion in the quarter and was up 5 percent to $18.1 billion in the full year. Schwartz, who has been a co-head of the securities trading division since 2008, is scheduled to replace Chief Financial Officer David A. Viniar at the end of this month.

Currencies, Commodities

Fixed-income, currency and commodity trading revenue surged 50 percent to $2.04 billion in the quarter and rose 10 percent to $9.91 billion for the year. Revenue from the equities division, overseen by co-chief operating officers R. Martin Chavez, Michael D. Daffey and Paul M. Russo, increased 36 percent to $2.3 billion in the quarter and was down 1 percent to $8.21 billion for the full year.

Investment banking, the business run globally by Richard J. Gnodde, David M. Solomon and John S. Weinberg, posted $1.41 billion in fourth-quarter revenue, up 64 percent from a year earlier. For the full year, revenue rose 13 percent to $4.93 billion. The investment banking transaction backlog, an estimate of future revenue from incomplete assignments, was higher at the end of 2012 than the end of the third quarter and Dec. 31, 2011.

Takeover Advice

Financial-advisory revenue, including fees for takeover advice, advanced 8 percent to $508 million in the fourth quarter and was down 1 percent to $1.98 billion in the full year. The firm’s mergers-and-acquisitions business, overseen by Gene T. Sykes, ranked first among advisers on global takeovers announced in 2012, the same rank it held in 2011, according to data compiled by Bloomberg.

Revenue from underwriting, a business led by Stephen M. Scherr, climbed 132 percent to $897 million in the fourth quarter and rose 25 percent to $2.95 billion in the full year. Debt underwriting fees were $593 million in the quarter, up from $196 million a year earlier, and advanced 53 percent to $1.96 billion for the year. Goldman Sachs was seventh among corporate bond underwriters in 2012, the same as a year earlier, according to data compiled by Bloomberg.

Equity underwriting revenue climbed 59 percent to $304 million in the fourth quarter, and declined 9 percent to $987 million for the year. Goldman Sachs, which held the top spot among arrangers of global equity, equity-linked and rights offerings in 2011, dropped to second place after Morgan Stanley in 2012, according to data compiled by Bloomberg.

Revenue from asset management rose 20 percent in the fourth quarter to $1.52 billion and was up 4 percent to $5.22 billion for 2012. Total assets under management increased $26 billion during the quarter to $854 billion.

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