The Goldman Sachs Group Inc. (GS: 145.5499 -0.1301 -0.09%) second quarter 2010 earnings per share of $2.75 were significantly ahead of the Zacks Consensus Estimate of $2.10. Including the impact of $600 million related to the U.K. bank payroll tax and $550 million related to the Securities and Exchange Commission (SEC) settlement, earnings per share were 78 cents for the second quarter of 2010.Last week, Goldman announced that it would pay $550 million to the SEC to settle a civil fraud suit linked with mortgage investments, which had been filed in April. During the second quarter of 2010, the U.K. enacted a law that imposed a non-deductible 50% tax on certain financial institutions in respect of discretionary bonuses in excess of £25,000 ($0.4 million) awarded under arrangements made between December 9, 2009 and April 5, 2010 to relevant banking employees.
GAAP net income in the quarter was $613 million, compared with $3.5 billion in the prior quarter and $3.4 billion in the prior-year quarter.
Goldman’s results reflected a difficult market environment during the reported quarter, which resulted in decreased client activity across its businesses.
Behind the Headlines
Behind the Headlines
Total revenue of Goldman decreased 31% from the prior quarter and 36% year over year to $8.8 billion. Revenue by business segment is as follows:
Investment Banking division generated revenues of $917 million, down 23% from the prior quarter and 36% year over year. Results reflected a decrease in revenues from debt and equity underwriting, primarily attributed to lower levels of industry-wide activity. However, these were partially offset by higher-than-expected revenues from financial advisory business as a result of an increase in client activity.
Trading and Principal Investments division generated revenues of $6.55 billion, significantly down 36% from the prior quarter and 39% year over year. Results deteriorated as a result of a decrease in revenues in equity trading (down 62% year over year) and fixed income (down 35% year over year), partially offset by the Principal Investment portfolio which increased 16% year over year.
Asset Management and Securities Services division generated revenues of $1.37 billion, up 2% from the prior quarter but down 11% year over year. While revenues from Asset Management improved, Securities Services slumped 35% due to rigid securities lending spreads.
Operating expenses decreased from $7.62 billion in the prior quarter to $7.39 billion and were down 15% year over year. Expenses declined as a result of lower compensation and benefit costs during the quarter.
Non-compensation expenses were $2.99 billion, up 41% from the prior quarter and 44% year over year, primarily due to the impact of net provisions for litigation and regulatory proceedings, higher professional fees and brokerage, clearing, exchange and distribution fees during the reported quarter.
Evaluation of Capital
Evaluation of Capital
As of June 30, 2010, Goldman’s Tier 1 capital ratio under Basel I was 15.2%, up from 15.0% as of March 31, 2010. Tier 1 common ratio under Basel I was 12.5% as of June 30, 2010, compared with 12.4% as of March 31, 2010. During the reported quarter, ROE on an annualized basis decreased substantially to 7.9% from 20.1% reported in the prior quarter.
Goldman’s book value per share improved 1% to $123.73 compared with $122.52 as of March 31, 2010. Tangible book value per share increased 1% to $112.82 from $111.41 as of March 31, 2010. Assets under management decreased by $38 billion to $802 billion in the quarter, due to $24 billion of net outflows primarily in money market assets.
Dividend Update
Goldman declared a dividend of 35 cents per share to be paid on September 29, 2010 to common shareholders of record as of September 1, 2010.
Performance by PeersIn Goldman’s peer group, JPMorgan Chase & Co. (JPM: 38.88 -0.16 -0.41%)reported positive results with a net income of $4.8 billion and revenue of $25.6 billion. Its impressive results were primarily bolstered by a slowdown in loan loss reserves, which more than offset a pressure on trading and investment banking revenues and a $550 million charge related to the U.K. bonus tax.
Morgan Stanley (MS: 24.6225 -0.1575 -0.64%), another of its competitors, will be releasing second quarter earnings on July 21, 2010.
Goldman is poised to grow significantly with its well-diversified business model and a favorable operating environment. In all, we think Goldman’s sturdy capital and liquidity will lead to an increased profitability from newer opportunities once the economy recovers.
Since the announcement of results, the share price of Goldman has decreased 0.7%.
| Analysts' Targets | |
| Oppenheimer & Co. Inc. | $213 |
| Perform | |
| Friday, July 16, 2010 | |
| Barclays Capital | $175 |
| Overweight | |
| Wednesday, June 23, 2010 | |
| Deutsche Bank Securities | $190 |
| Accumulate | |
| Friday, January 22, 2010 | |
No comments:
Post a Comment