Goldman Profit Falls on Banking Decline
By Brian Kelleher
Tuesday March 19, 9:51 am Eastern Time
NEW YORK (Reuters) - Goldman Sachs Group Inc. (NYSE:GS - news), one of the top U.S. investment banks, on Tuesday said its quarterly profit fell 32 percent, as flagging stock markets kept merger and underwriting activity on the wane and gains from trading securities dropped.
Goldman posted a profit decline for the fifth consecutive quarter, as accounting concerns dampened merger activity and falling stock markets kept companies from selling shares.
The firm, the world's top stock underwriter and merger advisor, reported improved results from the end of last year, but said conditions are still tough and it is planning job cuts.
Goldman reported net income of $524 million, or 98 cents a share, for its fiscal first quarter ended Feb. 22. That compared with earnings of $768 million, or $1.40 a share, a year ago. Earnings rose 5 percent from fourth quarter 2001.
Analysts, which trimmed their expectations during the quarter, expected the company to earn between 81 cents and 96 cents a share, with a consensus estimate of 89 cents, according to market research firm Thomson Financial/First Call.
Goldman shares were trading up $1.50 at $90.70 on Tuesday morning on the New York Stock Exchange, below their 52-week high of $105.15. The shares are off 3.8 percent in 2002, underperforming the Amex Broker-Dealer Index (^XBD - news), which is up nearly 3 percent this year.
``While we have seen some encouraging economic data of late, the current environment remains very challenging,'' Chief Executive Henry Paulson said in a statement.
Analysts were upbeat about the results, which included a hit from a big Vivendi Universal (NYSE:V - news) trade that didn't go Goldman's way.
``This quarter could have been a smashing feat, if it weren't for the loss on the block trade,'' said Reilly Tierney, an analyst at Fox-Pitt, Kelton. ``Other than that it looks like a really solid number ... this is a high-quality quarter all the way through except for the equity trade.''
INVESTMENT BANKING OFF 22 PERCENT
Total net revenue fell to $5.7 billion from $9.5 billion in last year's first quarter.
To cope with the decline, Goldman cut 2 percent of its staff, or 541 jobs, during the first quarter. The company ended the quarter with 22,136 employees.
The number of job cuts should decelerate throughout the year, ``assuming business conditions remain as we see them today,'' Chief Financial Officer David Viniar told reporters on a conference call. Goldman headcount should be down by ''mid-single digits'' at the end of the year, Viniar said.
Goldman's capital markets revenue, which includes investment banking and trading revenues, fell 33 percent from a year ago, to $2.22 billion.
Investment banking revenue fell to $893 million from $1.15 billion in last year's first quarter, but did rise from the fourth quarter of 2001. Goldman cited weakness in the communications, technology, and health care sectors. Advisory revenue fell 37 percent.
Trading and principal transaction revenue fell 38 percent from a year ago, to $1.33 billion. Fixed income, currency, and commodities net revenue rose 9 percent from last year's first quarter.
Equities net revenue dropped dramatically, down to $105 million from $1.18 billion a year ago, in part because of the Vivendi trade, Viniar said, declining to say how much money Goldman lost on the transaction.
Net income last rose year-over-year in the fourth quarter of 2000, although earnings per share still fell because the company's shares increased, diluting the per-share number.
Goldman's share count may rise later this year, as former and present employees will be eligible to sell shares they received from the company's 1999 initial public offering and a pair of acquisitions. This year, 20.5 million shares become eligible for sale on May 8, 43.4 million shares become eligible on June 21, along with 11.7 exercisable employee stock options.
Goldman had 534.4 million diluted shares outstanding at the end of the first quarter.
Goldman rivals Bear Stearns Cos. Inc. (NYSE:BSC - news) and Lehman Brothers Holdings Inc. (NYSE:LEH - news) are also expected to report profit declines on Wednesday, with Morgan Stanley (NYSE:MWD - news) posting results next week. |
