Actionable insights straight to your inbox


Goldman Sachs Slides in Earnings but Beats Estimates

Investment banking firm Goldman Sachs (GS) reported earnings after market close yesterday and revealed that earnings and revenues had both declined sharply year-over-year. However, earnings

Investment banking firm Goldman Sachs (GS) reported earnings after market close yesterday and revealed that earnings and revenues had both declined sharply year-over-year. However, earnings managed to beat estimates by a wide margin and Goldman Sachs saw its shares jump over 6.5 percent in early trading.

Earnings Beat Estimates

Goldman Sachs saw a 58 percent year-over-year decrease in its net income for Q4 of 2011. That’s the sort of news that rarely can be seen as a positive. However, analyst estimates predicted much gloomier news. Goldman Sachs made an even $1 billion in the fourth quarter for an EPS of just $1.84 per share. While this is way down from 2010’s $3.79 per share, but it outpaced analyst expectations of $1.24 per share by almost 50 percent. Beating expectations helped lead to the bounce in share prices and this, combined with news that the International Monetary Fund, IMF, intends to increase its war chest to $600 billion in response to the European debt crisis, helped to drive the Dow Jones Industrial Average up over 0.5 percent, the S&P up over 0.75 percent, and the Nasdaq up almost 1.25 percent.

Revenues Down Across the Board

While Goldman may have beaten earnings, it still revealed the extent to which volatility in the markets and fears over Europe have hit the margins of investment bankers. Goldman saw revenues drop in almost every segment of its company. Overall, Q4 revenue fell 30 percent year-over-year to $6 billion, advisory revenue was off 25 percent, equity and debt underwriting fell 56 percent, and trading revenue was down 16 percent. CFO David Viniar stated in a conference call with analysts that fear over Europe and volatility drove away clients and pared back trading operations. “Macro concerns still have clients in wait-and-see mode,” he said.

2011 a Rough Year Overall

Full year revenues were also sharply down for 2011 in almost every category, with earnings falling 47 percent from 2010 to $4.4 billion while revenue was off 26 percent to $28.8 billion and net income dropped 67 percent to $2.5 billion after factoring in $1.9 billion in preferred dividend payments.

“This past year was dominated by global macro-economic concerns which significantly affected our clients’ risk tolerance and willingness to transact,” said Lloyd C. Blankfein, Chairman and Chief Executive Officer. “While our results declined as a consequence, I am pleased that the firm retained its industry-leading positions across our global client franchise while prudently managing risk, capital and expenses. As economies and markets improve – and we see encouraging signs of this – Goldman Sachs is very well positioned to perform for our clients and our shareholders.”

Goldman’s earnings beat appeared to be a rising tide for all ships in the financial sector as a number of other major banks saw shares climb. Morgan Stanley (MS) climbed over 6.5 percent in early trading, JP Morgan (JPM) leapt over 4.5 percent, Bank of America (BAC) rose almost 4 percent, and American International Group (AIG) gained almost 2.5 percent.

Firm Also Seeks Capital for Energy Fund

Potentially lost amid news of the earnings release was the announcement that Goldman Sachs is seeking $2 billion to $3.5 billion for its first dedicated energy private equity fund. The fund, which will be called Broad Street Energy Partners, would look to raise funds to invest in oil, gas, and power in the global arena. Goldman is joining an increasing number of firms trying to capitalize on growing global energy demand, including Barclays (BCS) and Blackstone Group (BX).

With pandemic-induced supply chain bottlenecks receding, semiconductor stocks have been riding a bullish trend, making higher lows and higher highs.
To say the current situation isn’t pretty now seems an understatement, and it’s likely to remain chaotic for a while. Which is why it’s so important for leaders of all kinds not to fall prey to the very human tendency to go negative.
Bargain-hunting friends of mine have been asking: “Should I buy First Republic?” After all, First Republic is prestigious. Facebook founder Mark Zuckerberg got a mortgage there. Dozens of customer surveys rate its satisfaction scores higher than super-brands like Apple and Ritz-Carlton.
Many of us economy-watchers have been expecting recession, though with significant differences on odds and timing. Regardless, recent banking developments just made recession more likely and may have accelerated its onset.