NEW YORK Goldman Sachs Group Inc on Thursday posted a stronger than forecast fourth quarter profit while capping off its 2009 compensation pool at $16.19 billion in 2009, below record levels set in 2007 and shy of what many expected it to set aside for pay.
The earnings were reported ahead of an expected proposal from President Barack Obama to clamp down on financial risk taking by Wall Street banks that could affect Goldman and its rivals.
The Wall Street bank reported a quarterly net income to the company of $4.95 billion, or $8.20 a share for shareholders, compared to a loss of $2.12 billion, or $4.97 a share in the year earlier quarter.
Analysts on average expected a profit of $5.20 cents a share, according to Thomson Reuters I/B/E/S, although it was not immediately clear whether the EPS number was comparable to the estimate.
Goldman Sachs shares were up less than one percent in premarket trading.
The following is reaction from industry analysts and investors:
DAVID DIETZE, CHIEF INVESTMENT OFFICER, POINT VIEW
FINANCIAL SERVICES, SUMMIT, NEW JERSEY
"Goldman was a blowout. I think the most telling metric I saw was the change in revenues. They had $9.6 billion in the fourth quarter and that was up dramatically. It shows what a steep yield curve and return of confidence can do for the premier trading firm on the planet.
"There was also a decrease in percentage of revenue it paid to employees. For the entire year they are paying out just under 36 percent. Historically these banks have paid out 50 to 60 percent. I think it's fear of populist backlash. The firm has done everything possible to limit that.
"Think about Lehman, think about Bear . . . The bottom line is they don't need to pay the people quite as much as they used to because the competition for that talent is limited."
On Obama's proposal to limit risk-taking:
"It's a grand slam in terms of profiting from their risk-taking expertise but investors are wondering how much they can continue to profit in light of the all out attack from Washington.
The one thing that Wall Street hates is uncertainty. It's nothing if not uncertain.
I think that there is tremendous popular majority sentiment to restrict the banks and reign them in. This is the final button that Washington has left to push and I think they're going to push it."
MALCOLM POLLEY, CHIEF INVESTMENT OFFICER, STEWART CAPITAL
ADVISORS, INDIANA, PENNSYLVANIA
"It looks like the earnings were strong pretty much across the board, so it wasn't just trading that provided their numbers, which is a real positive. What we've seen from other banks that have reported in the last couple of days is that they had pretty big numbers last year because of trading revenues. Those trading revenues largely dried up and when they're forced to rely on their core franchise, the earnings just aren't there yet. It just shows you the power of Goldman's franchise right now."
On Obama's risk regulation:
"The first question is how are you going to limit risk taking? Are you going to limit it based on capital? Well that's fine. Goldman has plenty of capital. I think if by limiting risk taking he means that he's actually going to allow companies that take bad risks and get hurt from it to go away, then that's a good thing. Will that hurt Goldman? Probably not. I would say it actually probably helps them because you get rid of the walking wounded. Goldman from a trading perspective as JP Morgan from a banking perspective is the class act in the business. That's not to say they might not have their day in the toilet but that's not now.
If you want to limit risk taking then you allow people to take the responsibilities of the risks that they take.
The way you get a higher return is to take more risk but you have to be willing to accept the risks if you want the higher return."
MATT MCCORMICK, PORTFOLIO MANAGER AT BAHL & GAYNOR
INVESTMENT COUNSEL IN CINCINNATI:
"The low compensation ratio is in response to political pressure. Goldman Sachs is not a banking or financial story now, it's a political story. Obama wants to make financial companies utilities, and they're trying to install Glass Steagall-lite.
"It makes sense -- if you're going to take on outsized risk, you should be able to fail on your own.
"This is all happening now because of Brown. They could have done this a week or a month or a year ago, but clearly Obama has turned the page, and people like Goldman are squarely in his scope."
"The devil is in the details-I'm not opposed to Glass-Steagall lite, but I don't want them to get too deeply involved in making trading decisions for these banks. We saw what happened when Barney Frank and Chris Dodd told Fannie Mae and Freddie Mac how to lend."
PETER CARDILLO, CHIEF MARKET ECONOMIST AT AVALON PARTNERS,
"From market reaction, the numbers are being well-received by the market. Obviously Goldman Sachs is a big deal for the financial sector and the whole market, but we will have to see what President Obama has to say on his regulations."
KEITH DAVIS, BANK ANALYST AT MONEY MANAGER FARR, MILLER &
WASHINGTON IN WASHINGTON, DC.:
"The results look great. Revenues are in line, and that could have been a surprise to some given the weakness in fixed income trading that everyone else has been reporting.
"The big issue is that the compensation ratio came down so significantly, which I think is a good thing. I don't know whether they switched to restricted stock or what, but it didn't run through the income statement so they posted a blowout number.
"It will alleviate some political pressure. They've been in everyone's cross-hairs for how much money they make. I think they'll still be there, but the fact that they took down the bonuses will help incrementally."
"It sounds more to me like they're (the Obama administration) trying to separate the commercial banking activities from the trading desks. They want to make sure there's not FDIC-insured deposits subsidizing trading activities. If that's the case, Goldman really doesn't have much in the way of deposits."
"I'm sure in some way it will affect them (Goldman) -- since they're talking about trying to shrink the overall size of the biggest banks. I could see how this would affect Bank of America, JPMorgan, Citi, and perhaps a couple others, but I'm not exactly sure how they would go about shrinking Goldman when they don't really have a huge deposit base."
TODD LEONE, HEAD OF LISTED TRADING, COWEN & CO. IN NEW YORK
"Goldman's earnings were ridiculous. But they brought their comp ratio way down, earnings were higher and comp ratios were down."
"Goldman makes all their money off prop trading. But they did bring their comp ratio down, which is very interesting -- It's the lowest it's been, I think ever. That will help alleviate some of the pain. Financials have been driving the market the market the last few months. We'll see how Goldman pans out today. Typically they move down after the earnings."
WALTER TODD, PORTFOLIO MANAGER, GREENWOOD CAPITAL
ASSOCIATES, GREENWOOD, SOUTH CAROLINA:
"Goldman Sachs continues to print money. Revenue was in line with expectations, but earnings were a blow-out. Part of that has to do with the negative compensation expense during the quarter. Goldman more than most is under the microscope in terms of compensation. Their comp ratio was very low. They're playing the game as they see fit, and lower pay means more money drops to the bottom line.
Obama's proposals might impact Goldman, which is a bank after all. They may want to stop being a bank now. It's politically expedient to vilify these institutions, but that doesn't mean it's the right thing to do. They're trying to win back political points after losing the Massachusetts election. Obama comes out with something different every day for financial reform. It creates a very uncertain environment for these companies."