Goldman Profit Halves, but Beats Expectations

Goldman Sachs Group Tuesday said first-quarter earnings fell by half after recording more than $2.5 billion of losses on loans and other assets, yet robust trading helped the bank exceed an anxious market's reduced expectations.

Wall Street's biggest bank by profits and market value said net income fell to $1.51 billion, or $3.23 a share, in the quarter ended Feb. 29, from $3.20 billion, or $6.67, in the year-earlier period. Quarterly revenue fell 35 percent to $8.34 billion.

Analysts on average expected Goldman to earn $2.57 a share on $7.3 billion of revenue, according to Reuters Estimates.

"Goldman once again shines in difficult times. Times like these do separate the star performers," said Michael Holland, founder of Holland & Co LLC, a money manager overseeing about $4 billion. "This was a stellar report."

The bank's trading and principal investments revenue fell by nearly half to $5.12 billion from last year, and down by 26 percent from the fourth quarter, reflecting the continued turmoil in financial markets this year.

Goldman also recorded about $1 billion of net losses on residential mortgage loans and securities, as well as net losses of $1 billion on higher-risk corporate loans and the declining value of its investments. Before hedges, those loan write-downs were $1.4 billion.

Turmoil during the quarter also hurt Goldman's portfolio of direct investments, resulting in a net loss of $532 million as its stake in Industrial and Commercial Bank of China and other corporate investments fell in value.

Meanwhile investment banking revenue fell by a third to $1.17 billion, reflecting a slump in debt underwriting and decline in stock offerings. Goldman said its investment banking transaction backlog decreased during the quarter.

"Market conditions are clearly very difficult," Chief Executive Lloyd Blankfein said in a statement. "But we saw strong customer activity across many of our franchise businesses."

Banks and brokers have been slammed for more than a year, as the worst U.S. housing market in decades and a breakdown in debt markets generated some $200 billion of losses around the globe.

On Sunday, rival bank Bear Stearns, brought to the brink of collapse as its exposure to mortgages prompting an exodus of customers, was forced to accept a $2-a-share takeover offer from JPMorgan Chase.

Goldman had been a rare exception among banks as it avoided mortgage woes and reported record 2007 results fueled by surprisingly strong trading and investment gains. But Goldman's stock has plunged 30 percent this year as investors worried the company's earnings would finally feel the impact of the credit crunch.