April 1, 2023

DealBook: Goldman Sachs Swings to Profit as Revenue Surges

Lloyd Blankfein, chief of Goldman Sachs.Mark Lennihan/Associated PressLloyd Blankfein, chief of Goldman Sachs.

Goldman Sachs said on Tuesday that it swung to a profit in the third quarter, a strong comeback from a year ago, when it reported a rare quarterly stumble in the wake of losses in its private equity portfolio and broader global economic issues.

For the quarter, the firm reported net earnings applicable to common shareholders of $1.46 billion, or $2.85 a share, compared with a loss of $428 million, or 84 cents a share, in the quarter a year earlier.

Goldman’s revenue more than doubled, to $8.35 billion, from $3.59 billion in the year-ago period. The results exceeded the consensus of Wall Street analysts surveyed by Thomson Reuters.

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“This quarter’s performance was generally solid in the context of a still challenging economic environment,” Lloyd C. Blankfein, Goldman’s chairman and chief executive, said in a statement.

The better-than-expected performance is welcome news for Goldman, which has had a tough year as it has struggled against both economic challenges at home and abroad and new regulations that have reduced profitability.

Goldman Sachs

Goldman is not alone in feeling the profit pinch, and this quarter its rivals were aided by revenue from a boom in mortgage refinancing, a corner of the market in which Goldman does not have a big presence.

Still, net revenue in Goldman’s powerful fixed income, currency and commodities unit came in at $2.22 billion, 28 percent higher than the third quarter of 2011. The company said the increase reflected “significantly higher” revenue from trading in mortgages as well as a bump in revenue from trading items like currencies and interest-rate products.

During the first half of the year the firm earned roughly $3 billion in profit, down 20 percent from the same period last year.

The results also included a bump in the firm’s quarterly dividend, which the board recently voted to increase by 4 cents, to 50 cents a share.

Goldman’s annualized return on equity, a critical measure of profitability which effectively measures the profits a bank was able to generate on its capital, was 8.6 percent in the quarter. This is roughly the same as this time last year and up from 5.4 percent in the second quarter.

Still, Goldman’s single-digit return on equity is a stark reminder of how much more difficult today’s operating environment is. In 2006, its return on equity was 32.8 percent.

The firm set aside $3.68 billion, or 44 percent of its revenue, to pay employees. This is in line with previous accruals. The firm does not actually pay much of that out until early 2013, after it knows the year-end performance.

At the end of September Goldman had 32,600 staff consultants and temporary workers on the payroll, down 5 percent from a year ago. Goldman and its rivals have been moving to cut staff to make up for revenue shortfalls in a number of areas.

Article source: http://dealbook.nytimes.com/2012/10/16/goldman-sachs-swings-to-profit-as-revenue-surges/?partner=rss&emc=rss