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Goldman Sachs Earnings Fall But Beat Street; Shares Up

Goldman Sachs countered the negative tone set so far with big-bank earnings, beating Wall Street's lowered expectations and sending shares higher Wednesday.

The Goldman Sachs booth on the floor of the New York Stock Exchange
Getty Images
The Goldman Sachs booth on the floor of the New York Stock Exchange

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.

(Click here to get the latest pre-market trading quote for Goldman Sachs.)

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