Goldman Sachs Beats Expectations but Falls Behind Sector

Joel Anderson |

AIG, BAC, JPM, MS, GS, BCS, BX, banking, financial, Lloyd Blankfein, David Viniar, Goldman Sachs, earnings, revenues, EPS, earnings report, Q4, fourth quarterGoldman Sachs (GS) managed to beat analyst expectations by showing a lower-than-expected drop in revenue from Q1 2011. The Manhattan-based company was rocked by a major scandal after former employee Greg Smith exposed mistreatment of clients in a March resignation letter. However, rebounding bond profits from a tough Q4 in 2012 helped the investment banking firm beat expectations.

Revenues Drop, but Less Than Anticipated

 

Goldman's revenues fell 16 percent year-over-year to $9.95 billion, but this was still much better than the $9.48 billion expected by analysts. Profits fell even further, off 23 percent year-over-year if one removes expenses from buying back investments from Berkshire Hathaway (BRK.A), to $2.11 billion. However, the resulting EPS of $3.92 was well above the $3.55 expected by analysts polled by Reuters.

Goldman Sachs reigned in risk-taking in the first quarter of 2012 and focused on limiting expenses in a quest to improve profits, and it appears to have paid off in the short term at least. The firm's value-at-risk, a measurement of how much money the firm is willing to lose in a single day, fell to $95 million from $135 million in the previous quarter and $113 million in the same period last year.

"We're encouraged by the early signs of improvement in markets and the economy but remain cautious given the complexity of risks and challenges," said CFO Viniar.

Goldman Sachs also announced that it was increasing its dividend from $0.35 to $0.46.

Earnings Less Rosy When Compared to Sector

Goldman was another of the nation's major banks to report better-than-expected earnings after Wells Fargo (WFC) and JP Morgan (JPM) also beat expectations with reports last week. Citigroup (C) failed to beat expectations when reporting yesterday, but it still showed a better trading quarter than Goldman Sachs. While other major banks have seen improved profits from their commercial segments, Goldman Sachs has no commercial banking arm to fall back on. Despite this, Goldman Sachs reported a 20 percent decline in fixed-income trading revenue to $3.46 billion as compared to a 11 percent drop to $4.66 billion for JP Morgan and a 4 percent drop to $3.65 billion from Citigroup.

"Although earnings actually beat consensus, I think that the results look somewhat disappointing in comparison with the strong numbers we've seen out of JPMorgan and Citigroup," said Richard Staite, an analyst at Atlantic Equities LLC in a telephone interview with the San Francisco Chronicle. "The market had perhaps hoped for a real blow-out quarter from Goldman Sachs."

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
BIG Big Lots Inc. 46.50 -1.32 -2.76 874,471
C Citigroup Inc. 47.15 0.04 0.08 14,793,526
GS The Goldman Sachs Group Inc. 165.13 -2.89 -1.72 3,421,183
JPM JP Morgan Chase 67.25 -0.14 -0.21 13,967,357
WFC Wells Fargo & Company 45.74 0.02 0.04 28,710,524

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