Reports over $5 per share, beating estimates...
Oct. 15 (Bloomberg) -- Goldman Sachs Group Inc. reported a surge in third-quarter profit driven by trading and investments with the firm’s own money. The shares declined as earnings fell short of the bank’s record.
Third-quarter net income more than tripled to $3.19 billion, or $5.25 a share, in the three months ended Sept. 25, from $845 million, or $1.81 a share, in last year’s third quarter, the New York-based company said today in a statement. Some investors were expecting per-share earnings of as much as $6, the so-called whisper number.
Revenue compared with the second quarter dropped in every division except principal investing and asset management, and earnings declined 7.2 percent from the second quarter’s record $3.44 billion. Lloyd Blankfein, Goldman Sachs’s chairman and chief executive officer, stuck with the firm’s focus on advising, trading and investing after converting to a bank last year to win the Federal Reserve’s backing.
“I think the expectations were somewhat unrealistic,” said Peter Sorrentino, who helps oversee $13.8 billion at Huntington Asset Management in Cincinnati, including Goldman Sachs, its largest financial holding. “It’s gotten more competitive.”
Goldman Sachs, the best-performing stock this year among the 15 biggest U.S. banks, fell $3.65, or 1.9 percent, to $188.63 in composite trading on the New York Stock Exchange at 4 p.m.
“Obviously the net figure beat consensus estimates, primarily driven off the trading books, but the whisper was $6,” said Ioan Smith, a vice president at Knight Capital Europe in London.
The average estimate of 22 analysts surveyed by Bloomberg was for $4.18 a share, with forecasts ranging from $3.48 to $4.75.
“Our second quarter was a record in virtually every single business,” Chief Financial Officer David Viniar said on a conference call with reporters. The third quarter was the firm’s third-best in equities as well as fixed income, commodities and currencies, Viniar said. “So it was a fantastic quarter, just not as fantastic as the second quarter.”
Compensation, the company’s biggest single expense, accounted for 43 percent of revenue to total $5.35 billion in the third quarter. So far this year, Goldman Sachs has set aside $16.7 billion to pay employees, compared with $11.4 billion after the first three quarters of last year.
The firm allocated $16.9 billion in the first three quarters of 2007, a year that proved to be an all-time high for pay.
The prospect of record year-end bonus payments at Goldman Sachs has sparked criticism from lawmakers even after the firm repaid $10 billion it received from the U.S. Treasury last year plus dividends. Goldman Sachs has also benefited from Federal Reserve support, government backing on about $30 billion of debt, and was one of the largest recipients of funds from the bailout of American International Group Inc.
Viniar said Goldman Sachs is giving compensation “a lot of thought.”
“Our competitors are paying people quite well,” he said on the conference call. “We’re very focused on what’s going on in the world. We’re also focused on our franchise and the performance of our people.”
Goldman Sachs’s “biggest challenge and the thing that seems to get the most press is how much they put aside for comp expense,” said Michael Hecht, an analyst at JMP Securities LLC in New York, who rates the stock “market outperform.” “A year ago we were talking about whether they would survive and now they just have too much damn money.”