(September 20) – “Goldman Sachs Group Inc. handily weathered the aftermath of the springtime stock-market downturn, as earnings rose 29% in its fiscal third quarter ended Aug. 25,” writes Cheryl Winokur Munk in today’s Wall Street Journal.
“Gains in bond trading and merchant banking, or principal investments, offset weaker showings in investment banking and asset management, where net revenues declined from the second quarter. Third-quarter net income rose to $824 million, or $1.62 a diluted share, from $638 million, or $1.32 a diluted share, in the year-earlier period. The period’s performance also surpassed this year’s fiscal second-quarter net of $755 million, or $1.48 a share.”
“The firm easily beat estimates of analysts, polled by First Call/Thomson Financial, who expected the firm to post earnings of $1.51 a diluted share. In 4 p.m. New York Stock Exchange composite trading, Goldman rose $1.38 to $119.94.”
“Goldman booked $480 million of revenue from merchant-banking activities compared with a $321 million loss in the second quarter and a $328 million gain in the year-earlier period. Some of the latest gain came from reversing second-quarter markdowns taken following the stock-market decline, noted Guy Moszkowski, an analyst with the Salomon Smith Barney unit of Citigroup.”
“Goldman also signaled to analysts that it plans to continue ‘harvesting’ gains in its $3.5 billion portfolio of such principal investments. While Mr. Moszkowski said part of the latest gains came from the firm’s investment in VoiceStream Wireless Corp., David Viniar, Goldman’s chief financial officer, told analysts revenue from merchant banking was ‘not dominated by any single or any couple of names.’ “
“Mark Constant, an analyst with Lehman Brothers, noted that merchant-banking revenue was more than double the level of the first quarter, ‘and the first quarter was nothing to scoff at. ‘Another strong point, analysts said, was Goldman’s revenue from bond, currency and commodity trading. The firm booked $872 million of revenue from those activities compared with $634 million in the second quarter and $661 million in the third quarter of 1999.”
“Those gains helped offset a drop in investment-banking revenue. Revenue in that area was $1.3 billion, down 17% from the second quarter but up 15% from the year-earlier period. One analyst noted that year-over-year growth in Goldman’s investment-banking business cooled from 59% in the fiscal second quarter, 37% in the first, 59% in the fourth, and 20% in the third quarter of 1999. But another, Dean Eberling of Keefe, Bruyette & Woods, chalked up the decline to a seasonal summer slowdown.”
“Revenue from underwriting fell 27% from the second quarter, while merger advisory fees fell 5% during the same period. Goldman ranks second so far this year in global announced mergers and fourth in global underwriting through Aug. 31, according to Thomson Financial Securities Data.”