Goldman Tops Forecast, With $3.46 Billion in Earnings

Goldman Tops Forecast, With $3.46 Billion in Earnings
By NELSON D. SCHWARTZ
Copyright by The New York Times
Published: April 20, 2010
http://www.nytimes.com/2010/04/21/business/21goldman.html?hp


Beset by accusations of securities fraud, Goldman Sachs nevertheless showed Tuesday that it was still very good at what it does best: making money.

Earnings for the Wall Street giant rose 91 percent in the first quarter of 2010, to $3.46 billion or $5.59 a share, up from $1.81 billion or $3.39 a share in the same period last year. Revenues increased 36 percent to $12.78 billion, up from $9.42 billion in the quarter a year ago.

Analysts surveyed by Bloomberg had expected revenue of $11.05 billion and earnings of $4.14 a share.

Dushyant Shahrawat, a senior research director for TowerGroup, said the results reflected the depths to which Goldman had fallen during the financial crisis. “Things had fallen off the cliff so badly that frankly the only way from there was up,” he said.

Going forward, Goldman should profit from fast-paced growth in overseas markets, Mr. Shahrawat said, but it also may face new pressures like financial regulation and questions about its reputation.

“Unless the Dow goes to 14,000 anytime soon, the revenues are not going to blow the barn doors off,” Mr. Shahrawat said.

In the first quarter, the bank’s bond, commodities and currency trading once again bolstered the results.

In addition, Goldman said it had set aside 43 percent of revenue in the first quarter for employee salaries and bonuses, down from 50 percent for the period a year ago.

In a statement, the chief executive, Lloyd C. Blankfein said that the results reflected “more signs of growth across the economy and the strength of our client franchise.”

Tuesday’s quarterly results showed the dominance of the bank’s trading operations. Profit in the trading division jumped 43 percent to $10.25 billion in the quarter. Fixed-income trading had revenue of $7.39 billion, a 13 percent increase. Equities trading earned $2.35 billion, an 18 percent increase from the quarter a year ago.

The strong results are likely to be overshadowed by the Securities and Exchange Commission’s civil suit against the firm, filed on Friday, which accuses Goldman of not fully disclosing how the securities were selected, as well as Mr. Paulson’s role in advising the selection agent, ACA Management, on the overall makeup of the securities package.

“We would never intentionally mislead anyone, certainly not our clients or counterparties,” said Gregory K. Palm, Goldman’s general counsel, who joined David A. Viniar, Goldman’s chief financial officer, on the earnings call. “We certainly had no incentive to design a transaction that was designed to lose money.”

In the earnings statement, Mr. Blankfein said, “In light of recent events involving the firm, we appreciate the support of our clients and shareholders, and the dedication and commitment of our people.”

During the earnings call, Mr. Viniar said: “You can see from our results last quarter that our clients still support us. That’s the key to our success and has been the key to our success for a very, very long time.”

The S.E.C. suit has rocked Wall Street and sent Goldman shares reeling — they fell nearly 13 percent on Friday when the suit was disclosed — before recovering slightly Monday to close at $163.32.

The accusations from the S.E.C. have damaged the reputation of a firm that had come through the subprime debacle relatively unscathed, but which has been criticized more recently for its huge profits and bare-knuckle trading.

According to the S.E.C. suit, the hedge fund manager, John Paulson, helped select securities that had a high likelihood of defaulting, which were then bundled together and sold. The S.E.C. said the European banks ABN Amro and IKB lost more than $1 billion in the deal.

Goldman has denied any wrongdoing. In a statement Friday, Goldman called the commission’s accusations ”completely unfounded in law and fact” and said it would ”vigorously contest them and defend the firm and its reputation.”

With its results, Goldman became the fourth major bank to report this quarter, all benefiting from hefty trading profits. JPMorgan reported a profit of $3.3 billion, Bank of America earned $3.2 billion and Citigroup $4.4 billion. Morgan Stanley reports results on Wednesday.

In addition, Goldman’s directors declared a dividend of 35 cents a common share.

Javier C. Hernandez contributed reporting.