Goldman Sachs Reports Strong Third-Quarter Earnings
October 15, 2009 - 8:59 AMGoldman Sachs Group Inc.'s third-quarter earnings rose 73 percent from the depths of the financial crisis as income from the company's trading operations offset a drop in its investment banking business.
Goldman's stock fell 3 percent early Thursday as investors reacted to the slide in investment banking revenue, the result of a general slowness in takeover activity. Goldman also had $5.35 billion in compensation expenses during the July-September period.
Shares were trading at $186.48 before the market's open after closing Wednesday at $192.28.
Goldman earned $3.03 billion, or $5.25 per share, easily beating analysts' expectations for a profit of $4.24 per share. The bank earned $810 million, or $1.81 per share during its fiscal third quarter last year, which ended in August. During the peak of the credit crisis last fall, Goldman became a bank holding company and changed to calendar quarterly reporting periods.
The company said fixed income, commodities and currency trading buoyed its profits for the second straight quarter.
Investment banking revenue, traditionally the foundation of the company's business, fell to $899 million in the third quarter. The results were 31 percent worse than similar quarter last year as the credit crisis was worsening and 38 percent worse than the most recent quarter.
Goldman attributed the drop to a decline in bond underwriting as the still troubled credit markets limited the amount that companies could borrow to complete deals. The investment banking business would have fared even worse were it not for strong stock underwriting activity. As the stock market has rebounded, Goldman was able to leverage its strong reputation to help companies issue new shares to take advantage of the rising market.
Lloyd Blankfein, the company's chairman and CEO, said Goldman is starting to see a rebound across many of its businesses even as the broader economy and consumers continue to struggle with rising unemployment and mounting loan losses.
"Although the world continues to face serious economic challenges, we are seeing improving conditions and evidence of stabilization, even growth, across a number of sectors," Blankfein said in a statement.
Goldman, which has outperformed other financial companies for years, has been the strongest bank throughout the financial crisis. It had less exposure to toxic mortgage-backed securities than other companies and also has been more aggressive in its trading.
As an investment bank, its exposure to traditional consumer loans, like mortgages and credit cards, that have plagued traditional banks like Citigroup Inc. and Bank of America Corp., is limited.
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