AP
Goldman Sachs 2Q earns fall but beats expectations
Tuesday June 17, 5:20 pm ET
By Joe Bel Bruno, AP Business Writer
Goldman Sachs 2Q profit falls but beats expectations, driven by asset management, underwriting


NEW YORK (AP) -- Goldman Sachs navigated yet another quarter of market turmoil and tight credit, with runaway prices of commodities such as oil and gold helping to drive profit.

The world's biggest investment bank parlayed skyrocketing prices in energy and other commodities into net income of more than $2 billion during the second quarter. Results from its commodities business was close to matching the first quarter's record performance, according to Goldman's chief financial officer.

Though investment bankers and asset managers won't be shoved aside by Goldman's commodities traders anytime soon, the strong performance is one demonstration of Goldman's reach during market upheaval. The same can be said about areas such as its prime brokerage, where Goldman executes trades on behalf of hedge funds and other institutional investors.

"Nobody really knows what the next hot area next to investment banking and trading will be, so the key becomes having diversified capabilities and being nimble enough to move where the opportunities present themselves," said Jeffery Harte, an analyst with Sandler O'Neil. "Unfortunately, if you get in a bear market, diversification carries you only so far -- Goldman is still down year-over year."

The company reported a profit of $2.05 billion, or $4.58 per share, for the three months ended May 30, compared to $2.29 billion, or $4.93 per share a year earlier. Revenue fell 7 percent to $9.42 billion from $10.18 billion a year earlier.

The latest results easily surpassed Wall Street expectations for a profit of $3.42 per share on $8.74 billion of revenue, according to analysts surveyed by Thomson Financial.

Lloyd Blankfein, Goldman's chairman and chief executive, said he was pleased with how the company performed given the market's turbulence. Global banks and brokerages have been roiled by the implosion of mortgage-backed securities and leveraged loans, which forced them to write down nearly $300 billion worth of assets since last year.

"We are realistic about the market challenges we face, but times of market dislocation also produce opportunities, and we will continue to take advantage of the most attractive of these as they arise," he said in a statement.

The Goldman results were in sharp contrast to the nearly $3 billion loss that Lehman Brothers Holdings Inc. reported on Monday. The nation's fourth-largest investment bank was forced to raise nearly $6 billion in fresh capital, and investor angst about the loss led to the demotions of its chief financial officer and chief operating officer.

During the second quarter, Goldman indicated that the risk from commodity operations had doubled from the year-ago period. The average daily value-at-risk, a Wall Street gauge that sums up the potential losses, for commodities rose to $48 million in the quarter from $38 million last year.

Goldman did not break down how much revenue the business brought in, though it has one of the largest commodity operations on Wall Street. The increase in commodity's risk also was pinned on market volatility and activity during the three months ended May 30.

The firm also benefited from a $725 million gain during the quarter from its own investments, including a $214 million gain from its stake in Industrial and Commercial Bank of China Ltd. Revenue for all of Goldman's trading and principal investments fell 16 percent to $5.59 billion.

Equity underwriting produced quarterly net revenue of $616 million, its second-best quarter and highest in eight years. Securities services -- which includes the firm's prime brokerage business -- posted record quarter revenue of $985 million.

Goldman reported that revenue from its investment banking business fell 2 percent to $1.69 billion. However, its financial advisory business posted revenue of $800 million -- 13 percent higher due to robust trading during the quarter.

Revenue from Goldman's asset management business surged 18 percent to $2.15 billion. Goldman said the increase was due to "market appreciation in equity assets' and inflows into money market and fixed-income products.

Goldman said it had $226.87 billion of capital as of May 30. That includes $44.82 billion in shareholder's equity.

Chief Financial Officer David Viniar would not speculate if any of Goldman's businesses hurt by the credit crisis -- such as investment banking and underwriting of leveraged loans -- would rebound sharply soon. He believes that the first few weeks of March marked what most people feel was the bottom for the credit markets.

"We're a ways through what has happened," he told reporters. "I think there is a lot of the crisis behind us, and that means there's less to come then there was."

Shares of the company fell $2.65 to $179.44 in trading Tuesday.