Goldman Sachs Earnings Fall But Beat Street; Shares Up
CNBC.com Senior Writer
Goldman Sachs countered the negative tone set so far with big-bank earnings, beating Wall Street's lowered expectations and sending shares higher Wednesday.
In the fourth quarter, the company posted earnings excluding items of $1.84 per share, down from $3.79 a share in the year-earlier period, representing a 58 percent drop as investment banking revenue fell.
Revenue missed expectations at $6.05 billion, a decrease from $8.64 billion a year ago.
Analysts had expected the company to report earnings excluding items of $1.24 per share on revenue of $6.55 billion.
For the full year, the company saw earnings of $4.51 per share, well below the $13.18 reported for the previous 12-month period. Goldman saw total net revenues of $28.81 billion and net earnings of $4.44 billion in 2011. Return on equity was 3.7 percent.
Earnings were weighed in part on the company paying back Warren Bufett's Berkshire Hathaway $5.65 billion stake in the bank.
The firm also had to contend with tightened conditions that hurt its competitors — Citigroup and JPMorgan Chase in particular. A tougher trading environment and investor fear over European sovereign debt exposure has hit the large names hardest.
The company cut 2,400 jobs last year and had total compensation expense of $12.2 billion, a reduction of 21 percent. However, because the company also cut personnel its compensation ratio actually rose.
"This past year was dominated by global macro-economic concerns which significantly affected our clients' risk tolerance and willingness to transact," CEO Lloyd C. Blankfein said in a statement. "While our results declined as a consequence...Goldman Sachs is very well positioned to perform for our clients and our shareholders."
Investment banking revenues tumbled 9 percent to $4.36 billion while financial advisory profit fell 4 percent to $1.99 billion. Underwriting plunged 14 percent to $2.37 billion due to what the company called an industry-wide decline in activity.
Net revenue in equities fell 15 percent to $1.69 billion.
In a subsequent conference call, Goldman officials said they are targeting $1.4 billion in cost savings for 2012, up from an original $1.2 billion target. Goldman said it can achieve the cuts due to weakness in its European competitors, a theory pushed by Rochdale Securities analyst Dick Bove, who believes American banks will be the ultimate beneficiary of the sovereign debt crisis.
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