GOLDMAN Sachs Group may be facing complications from the political and legal storm over its business practices, but the Wall Street bank's first-quarter financial results continued a pattern of trouncing even optimistic expectations.
Goldman, the subject of civil-fraud charges that the government brought Friday that rocked the bank and Wall Street, reported that its profit in the first quarter soared 91 per cent from a year earlier to $US3.46 billion ($3.7bn).
The results, driven by strong trading and bond underwriting, helped deliver a much-needed boost amid the controversy swirling around the firm since last week.
Lloyd C. Blankfein, Goldman’s chairman and chief executive, alluded to the Securities and Exchange Commission’s complaint only once in the company’s earnings release.
“In light of recent events involving the firm, we appreciate the support of our clients and shareholders, and the dedication and commitment of our people,” he said in a statement.
Goldman’s staff was paid well for its support. Compensation rose 17 per cent to $US5.5bn from $US4.7bn a year earlier.
Still, compensation declined as a percentage of the company’s net revenue, to 43 per cent from 50 per cent.
Goldman reported a profit of $US3.46bn, or $US5.59 a share, up from $US1.81bn, or $US3.39 a share. Revenue jumped 36 per cent to $US12.78bn.
The most recent consensus forecast of analysts polled by Thomson Reuters was that the New York investment bank would report earnings of $US4.01 a share on $US11.07bn in revenue.
Despite the strong results, Goldman shares were down about 1 per cent in midday trading yesterday. The stock fell nearly 13 per cent Friday after the SEC filed its complaint.
Goldman has posted impressive results recently as it has pulled ahead of rivals that are struggling to overcome the credit crisis. But a cloud has developed in the past few days as the SEC accused the company and one of its executives of defrauding investors by peddling a mortgage-related financial product it knew was doomed to fail as the housing market collapsed. Goldman maintains it did nothing wrong and is fighting the charges.
In a conference call that lasted more than an hour, most of analysts’ questions dealt with the legal entanglements facing the company.
Goldman’s co-general counsel, Greg Palm, said during a conference call that the investment bank wouldn’t intentionally mislead clients and would “be the first” to condemn any employees that went against that credo.
Mr Palm said “our responsibilities as a financial intermediary require it, and our commitment to integrity and the firm’s business principles demand it”. He added that the case is heading toward a trial at this point, but that there is certainly the possibility that Goldman could settle if both sides come into agreement.
In the SEC complaint, Goldman executive Fabrice Tourre was accused of defrauding investors by peddling a financial product the investment bank knew was doomed to fail. Mr Tourre is currently out on indefinite leave; he hasn’t been suspended by Goldman.
The company’s total trading and principal investments, which accounted for most of its revenue, rose 43 per cent in the quarter to $US10.25bn. Fixed income, currency and commodities revenue, which is part of total trading and principal investments, rose 13 per cent.
Investment-banking revenue increased 44 per cent, though it dropped 28 per cent sequentially.
Mr Palm raised Goldman’s estimate of losses on the transaction being investigated by the government to upward of $US100 million from the previous estimate of about $US90m.
“We don’t know how this case is going to unfold at this point. It’s very early on,” he said.
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