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Goldman’s earnings surpass expectations

Goldman Sachs' second-quarter earnings fell about 10 percent, but still easily beat lowered Wall Street expectations on higher fees from asset management and stock underwriting.
/ Source: The Associated Press

Goldman Sachs Group Inc., the world’s largest investment bank, on Tuesday said second-quarter earnings fell about 10 percent, but still easily beat lowered Wall Street expectations on higher fees from asset management and stock underwriting.

The company reported a profit of $2.05 billion, or $4.58 per share, for the three months ended May 30 compared to $2.29 billion, or $4.93 per share a year earlier. Revenue fell 7 percent to $9.42 billion from $10.18 billion a year earlier.

The latest results easily surpassed Wall Street expectations for a profit of $3.42 per share on $8.74 billion of revenue, according to analysts polled by Thomson Financial.

Shares of the company fell $2.65 to $179.44 Tuesday.

“Given the difficult market conditions, we are particularly pleased to be able to report strong results for the second quarter,” said Chairman and Chief Executive Lloyd Blankfein in a statement. “We are realistic about the market challenges we face, but times of market dislocation also produce opportunities, and we will continue to take advantage of the most attractive of these as they arise.”

His comments were echoed by Chief Financial officer David Viniar who believes that the first few weeks of March marked what most people feel was the bottom for the credit markets. He said the company will continue to navigate through a credit crisis that has hurt some of its competitors and caused the near collapse of Bear Stearns.

“We’re a ways through what has happened,” he told reporters. “I think there is a lot of the crisis behind us, and that means there’s less to come then there was.”

The Goldman results were in sharp contrast to the nearly $3 billion loss that Lehman Brothers Holdings Inc. reported on Monday. The nation’s fourth-largest investment bank was forced to raise nearly $6 billion in fresh capital, and investor angst about the loss led to the ouster of its chief financial officer and chief operating officer.

Global banks and brokerages have been roiled by the implosion of mortgage-backed securities and leveraged loans, which forced them to write down nearly $300 billion worth of assets since last year. Morgan Stanley on Wednesday will report its results for the second quarter.

Goldman benefited from a $725 million gain during the quarter from its own investments, including a $214 million gain from its stake in Industrial and Commercial Bank of China Ltd. Revenue for all of Goldman’s trading and principal investments fell 16 percent to $5.59 billion.

But, it wasn’t entirely smooth sailing for the investment bank, which had $775 million of write-downs from credit market losses. That caused revenue from its fixed-income business to fall 29 percent versus a year ago.

The higher price of energy and other commodities pushed that business “to a near record,” Viniar said. Goldman does not break out how much its commodities business made.

Equity underwriting produced quarterly net revenues of $616 million, its second best quarter and highest in eight years. Securities services — which includes the firm’s prime brokerage business — posted record quarter revenue of $985 million.

Goldman reported that revenue from its investment banking business fell 2 percent to $1.69 billion. However, its financial advisory business posted revenue of $800 million — 13 percent higher due to robust trading during the quarter.

Revenue from Goldman’s asset management business surge 18 percent to $2.15 billion. Goldman said the increase was due to “market appreciation in equity assets’ and inflows into money market and fixed-income products.

Goldman said it had $226.87 billion of capital as of May 30. That includes $44.82 billion in shareholder’s equity.