Earnings: Goldman Sachs

Goldman Sachs today reported net revenues of $12.4bn and net income of $3.2bn for the third quarter, both an improvement from Q2 and Q308’s numbers. On a per share basis, the company reported $5.25 for the quarter, more than 3x the $1.81 that came out last year and $4.93 for Q2.

The quarter strong numbers are a result of the strong performances showed by its Fixed Income, Currency, and Commodities (FICC) division as well as the Equities division.

Breaking down the numbers, revenues were lower for Investment Banking, dropping 38% from the second quarter and 31% from last year. It’s a bigger fall for Financial Advisory after a slowdown in M&A’s completed for the quarter. Meanwhwile, the underwriting business also was lower due to lower revenues from debt underwriting partly offset by an increase in equity underwriting due to developments in the IPO market.

As expected, Goldman had benefited well from the rally in the equity markets with its net revenue in equities surging 78% from last year’s Q3. Derivatives revenue also made a significant contribution.

For the bank’s Asset Management, lower net revenues were offset by an increase in the amount of AUM, driven by the strong market appreciation.

In terms of compensation, it’s funny how the bank did not show how much increase there was from the previous comparative periods, while indicating lower proportion of comp to net revenues compared with Q2 and Q308 numbers. BUT to be fair, compensation and benefits declined by 20% from Q2.

Overall improvements in the business also mean higher Tier 1 capital and common ratios of 14.5% and 11.6%, respectively.

Dow 10,000!!!

The Dow climbed past the 10,000 mark yesterday, the first time it touched the level since October last year, after the first of the big banks reported strong profits for the third quarter.  But it doesn’t quite feel like there’s much to be happy about.  Typically, breaching this level from below serves as a good technical indicator that stocks will continue moving to the upside.  With some strong earnings on their way, particularly for banks, this move higher is just probably not done yet.  And it’s not good.  This goes back again to the issue of the huge market rally since March 9 lows and maybe even being on the green year-to-date, which are not really backed by strong fundamentals.  Unemployment is still rising, consumer demand is not yet picking up, and well, the move’s just been too fast too soon.  What all this means is, 10,000 isn’t good this time.  Any sort of relief or achievement we feel from this has to be translated to caution and fear.  We’re just being set up for an even bigger, harder fall.

Let me post below some ways people took note of yesterday’s move when the Dow closed at 10,015.

From the Wall Street Journal:

Reaction this time was more muted than the first time the Dow closed above the 10000 mark, on March 29, 1999, when traders popped Champagne and passed around “Dow 10000” baseball caps. “People don’t believe it, they don’t trust it, they are nervous, they are anxious,” said Andy Brooks, head of stock trading at money-management group T. Rowe Price. “Most of us can’t believe the year we have just been through, where you made and lost so much money.”

The Dow rose 144.80 points, or 1.47%, its best point and percentage gains since Aug. 21. Other stock indexes posted similar gains. Despite the milestone, analysts pointed out it means the market is no higher than it was 10 years ago. In fact, the Dow has moved above the 10000 mark 25 times before now, only to fall back to four-digit territory each previous time.

And this probably led Barry Ritholtz to point out what was probably the best Dow 10,000 investment:

$140bn in bank compensation: Ain’t too shabby

WSJ puts up a table on compensation for some of the biggest banks, hedge funds, asset managers, and stock and commodities exchanges.  The number: a record $140bn.  Yes, that’s higher than the $130bn that was paid when the market was at its peak back in 2007 and before everything came tumbling down.

Here’s the table:

Some things to note: Look at Blackstone’s compensation as a % of its projected revenue. Even the absolute number.  Wowzers.  And among the investment banks, it isn’t surprising that Goldman has the biggest in an absolute basis. Meanwhile Morgan Stanley also will be paying more than Citi and BofA would to its employees.

Then again, that’s just WSJ’s prediction.  Although higher or lower than that, I suppose it wouldn’t be so wrong for me to declare, let the compensation bashing begin.

Source: WSJ

Whitney downgrades Goldman Sachs

Her only financial “buy” last quarter is no longer such after she downgraded the former investment bank today to “neutral” days before it releases earnings.   Here’s the release, courtesy of the FT:

And she explains the reason behind move:

She also provided her views on the upcoming Q3 earnings:

Source: FT Alphaville 1, FT Alphaville 2

Geithner in constant contact with Wall Street big wigs

There’s another story on WSJ today about Treasury Secretary Tim Geithner’s frequent contact with the CEOs and other executives of Wall Street’s biggest banks.  They seem to be taking issue at it again.  It’s not surprising though that Goldman’s Lloyd Blankfein is Timmy’s best buddy, having been in contact relatively most frequently. Citi followed with communications with Richard Parsons and less frequently, Pandit.

Calendars released by the Treasury Department in response to a Wall Street Journal Freedom of Information Act request show more than 80 contacts between Mr. Geithner and financial titans such as Lloyd Blankfein of Goldman Sachs, James Dimon of J.P. Morgan, Citigroup Chairman Richard Parsons and Laurence Fink of BlackRock from January through July.

It is to be expected that a Treasury secretary would talk to bankers frequently amid a financial crisis, and Mr. Geithner’s contact may have played some role in calming the crisis.

Still, the disclosure of Mr. Geithner’s contact with top bankers could prove tricky for an administration that has tried to distance itself from the industry.

Seriously, just quit taking issue. What’s necessary needs to be done and I don’t know what to make of those who take something out of every happening.

Source: WSJ

Goldman’s possible next billion dollar

FT is reporting that if CIT, the ailing small- and medium-sized business lender, fails, the former investment Goldman Sachs might receive another billion dollars while the taxpayers lose $2.3bn.

The payment stems from the structure of a $3bn rescue finance package that Goldman extended to CIT on June 6 2008, about five months before the Treasury bought $2.3bn in CIT preferred shares to prop it up at the height of the crisis. The potential loss for taxpayers would be the biggest to crystalise so far from the government’s capital injection plan for banks.

The agreement with Goldman states that if CIT defaults or goes bankrupt, it “would be required to pay a make-whole amount” that totals $1bn, the people familiar with the matter said.

Goldman backlash, anyone? People are beginning to complain about taxpayers standing to lose that much. Yet if contract stipulates that Goldman would be paid in the event of CIT’s failure, then what? Is this going to create another issue of fighting over contract terms a la AIG and the backlash against the hundred-million-worth of bonuses it agreed to pay to its employees?

Source: FT

Thursday reads

US Begins Bailout Strategy and US Trade Gap Shows Biggest Jump in 10 Years– FT

Translating Lloyd Blankfein’s Speech – Deal Journal [Ah, here goes another Goldman backlash]

And the inspiration behind the translation – FT

Job Openings Fell to Record Low in July – WSJ

Obama’s Address to a Join Session of Congress on Health Care – WaPo

and What Was Missing in Obama’s Speech – NYT

Bears, Keep the Faith – FT Alphaville

Why Economists Rarely Say Bad Things About the Fed – naked capitalism

Dumb Analysis of the Day: Bank Profits May Drop on Regulations – Big Picture

BBC’s Lehman Towers – FT Alphaville

Next Chapter in Rakoff – BofA – SEC Love Triangle Gets Interesting / BofA’s Retort to Andrew Cuomo – Zero Hedge

Good Billions After Bad – Vanity Fair

Goldman responds to trading huddle controversy

Days following an article came out of the Journal talking about “trading huddles”, meetings which at times produce inconsistent views as those in the firm’s published reports, Goldman Sachs sent out a letter to its clients clarifying some things.  Many thanks to the Clusterstock blog for this great material:

Very interesting stuff.

Links for today

Some other headlines and op-eds worth reading today:

Late-night additions:

SPX at Post-Lehman Fib Retracement Target of 1035-1037 – VIX and More

Credit Suisse: The Junk Rally Must Come To An End – The Money Game

Pimco To Launch First Short-Term TIPS ETF – IndexUniverse

—

ECB Warns of ‘Bumpy Road’ as No Stimulus End Signaled – Bloomberg

The Risk of Double-Dip Recession Is Rising – FT

Mining the Web for Feelings, Not Facts – NYT

Appetite Returning to US Muni Bond Market – FT

Europe Industrial Orders Increase More Than Forecast – Bloomberg

Wake Up, Xenophobes – TechCrunch

The Rage over Goldman Sachs – Time

Goldman’s Trading Tips Reward Its Biggest Clients – WSJ

…and Ritholtz responds again – Its Not Called “First Call” For Nothing – Big Picture

*I just noticed I have three Goldman-related articles for today.*

Goldman notes, anyone?

Courtesy of ZeroHedge. This one’s quite funny. HT to Ritholtz.

Courtesy of The Big Picture

The time Morgan won against Goldman

There’s an interesting story from Fortune Magazine about rivals Morgan Stanley and Goldman Sachs and the time when the former won against the latter.  How? Through warrant repurchase, when John Mack’s firm paid $150m less than what Blankfein’s Goldman paid for.

From Fortune:

The $150 million win was good news for Morgan Stanley (MS, Fortune 500), which lately had been looking like the big ugly bear compared to Goldman’s (GS, Fortune 500) floating butterfly. While Goldman has been raking in the profits during the first six months of 2009 — $5.1 billion to be exact, the best six-month stretch in the firm’s history — Morgan has been making losses of $345 million from continuing operations.

Read the rest here.

The story also outlines how Morgan did it.  Sure this isn’t a major issue at all but it’s sometimes fun to hear stories like this.

M Lewis responds to Goldman rumors

An entertaining commentary from Michael Lewis, write of Liar’s poker about Goldman Sachs. and the rumors/criticsm flying around it.

What small interest we maintain in the U.S. government is, we feel, in the public interest. Our current financial crisis has its roots in a single easily identifiable source: the envy others felt toward Goldman Sachs.

The bozos at Merrill Lynch, the dimwits at Citigroup, the nimrods at Lehman Brothers, the louts at Bear Stearns, even that momentarily useful lunatic Joe Cassano at AIG — all of these people took risks that no non-Goldman person should ever take, in a pathetic attempt to replicate Goldman’s financial returns.

Complete the reading HERE.