Goldman Sachs Posts Third-Quarter Loss

Tuesday, October 18, 2011 Posted by TFAL Team

Goldman Sachs Group Inc. (GS) reported its second quarterly loss in 12 years as the firm lost money on investments and revenue declined from trading, asset management and securities underwriting.
The third-quarter loss of $393 million, or 84 cents per share, compared with a profit of $1.9 billion, or $2.98, a year earlier, the New York-based company said today in a statement. The average estimate of 26 analysts surveyed by Bloomberg was for an 11-cent loss per share, with estimates ranging from a $1.02 loss to a $1.22 profit.
Chairman and Chief Executive Officer Lloyd C. Blankfein, 57, has tied Goldman Sachs’s fortunes to trading, which accounted for 62 percent of revenue in the first nine months of 2011, and the firm’s investments in companies and other assets, which lost more money in the third quarter than analysts estimated. Declines in assets ranging from equities to mortgage- backed bonds led to lower trading revenue and markdowns of the firm’s own investments.
“I suspected that trading would be off given what happened in the quarter, but it was a little bit worse than expected,” said Peter Sorrentino, a senior portfolio manager at Huntington Asset Advisors in Cincinnati, which oversees $14.5 billion and owns Goldman Sachs stock. Investing and lending “is one of those things that you don’t think about a lot and when it hits it’s really disappointing.”
Goldman Sachs, which dropped 42 percent this year through yesterday, rose $2.40, or 2.5 percent, to $99.30 in New York Stock Exchange composite trading at 9:34 a.m.
Book Value
“With a tangible book value of about $120 a share, this stock is trading at a deep discount,” Charles Peabody, an analyst at Portales Partners LLC in New York, said in an interview with Betty Liu on Bloomberg Television’s “In the Loop.” “We still think the basic franchise is intact, the risk management capabilities are intact and the desire of clients to use their intellectual capital is intact.”
The company, which said in July that it planned to cut about 1,000 jobs to reduce annual costs by $1.2 billion, said it employed 34,200 people at the end of September, down 1,300 from the end of June.
Investing and Lending, the segment that includes Goldman Sachs’s stakes in Industrial & Commercial Bank of China Ltd. and other companies, as well as holdings by the Special Situations Group run by Jason M. Brown, reported negative revenue of $2.48 billion for the quarter. That compared with revenue of $1.04 billion in the second quarter and $1.8 billion in the third quarter of 2010.
Analysts’ Estimates
Brad Hintz, an analyst at Sanford C. Bernstein & Co., estimated the unit’s loss at $1.67 billion. Ed Najarian, an analyst at International Strategy & Investment Group Inc., predicted the firm would report a $1.33 billion loss in the business.
The unit’s $907 million negative revenue on debt securities and loans was worse than the $200 million in positive revenue that Hintz expected. The business includes investments by the Special Situations Group, which bets the company’s own money on distressed debt and other assets.
“It was much worse,” Hintz said. “They probably had a large credit bet on.”
Goldman Sachs’s third-quarter revenue fell 60 percent to $3.59 billion from $8.9 billion a year earlier and declined 51 percent from $7.28 billion in the second quarter. The company’s book value per common share decreased to $131.09 from $131.44 at the end of the second quarter.
Trading Revenue
Overall revenue from trading, run since February 2008 by Edward K. Eisler, David B. Heller, Pablo J. Salame, and Harvey M. Schwartz, rose 16 percent to $4.06 billion from $3.52 billion in the second quarter and was down 13 percent from $4.67 billion in the third quarter of 2010.
Fixed-income, currencies and commodities, typically the firm’s biggest source of revenue, dropped 36 percent to $1.73 billion from $2.69 billion a year earlier and increased from $1.6 billion in the second quarter. Equities trading revenue rose to $2.33 billion from $1.98 billion a year earlier and from $1.92 billion in the second quarter.
Hintz predicted $2.15 billion in FICC revenue, and Najarian estimated $1.84 billion.
“The fixed-income trading number looked very good relative to the fixed-income trading that you heard from, say, Bank of America and others,” said Hintz, who rates Goldman Sachs stock “outperform.” “That says that the best traders in town continue to be the best traders in town.”
Bank of America
Bank of America Corp. reported $314 million of revenue from fixed-income, currencies and commodities excluding an accounting benefit from debt-valuation adjustments. Goldman Sachs didn’t say whether its figure included a similar accounting gain.
Investment banking, overseen globally by Richard J. Gnodde, David M. Solomon and John S. Weinberg, generated $781 million of revenue in the third quarter, down from $1.45 billion in the second quarter and $1.16 billion in the third quarter of last year. The company ranks No. 1 among advisers on global takeovers announced this year and also has the top spot among managers of global equity and equity-linked offerings, according to data compiled by Bloomberg.
JPMorgan Chase & Co. (JPM), the biggest U.S. bank by assets, said last week that investment-banking fees dropped to the lowest level since 2006 and that trading revenue slid 13 percent from the second quarter. Citigroup Inc., the third-biggest U.S. lender, said investment-banking fees fell 21 percent from a year earlier and 32 percent from the second quarter.

Source : bloomberg.com
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