NEW YORK (Reuters) - Goldman Sachs Group Inc reported a stronger than forecast 33 percent rise in quarterly earnings as a gain in trading outweighed a one-time charge to repay government loans.
Wall Street’s largest surviving investment bank reported net income for common shareholders of $2.7 billion, or $4.93 a share, compared with a pro-forma $2.05 billion, or $4.58 a share a year earlier.
Stripping out extraordinary items, Goldman earned $4.93 a share, beating analysts’ consensus forecast of $3.39, according to Reuters estimates.
The following is reaction from industry analysts and investors:
TERRY MORRIS, SENIOR VICE PRESIDENT AND SENIOR EQUITY MANAGER FOR NATIONAL PENN INVESTORS TRUST COMPANY IN READING, PENNSYLVANIA
“I saw this coming, or at least thought I did. It’s a buy the rumor, sell the news kind of thing. They did print a good number but based on yesterday’s action it was apparently all built into the stock, at least for now.
“So now the stock is selling off. Just goes to show that its all relative to the expectations that were embedded into the price of the stock at the time.
“This is all opposed to Johnson & Johnson, which beat expectations by only something like three cents but is trading a buck higher. They didn’t beat expectations nearly as much as Goldman, but J&J is trading higher because the expectations weren’t priced into the stock already.
“I would say that the reason futures pared their gains is because of Goldman. Goldman puts a cap on the financials today. But they were the leaders yesterday, so they deserve a break. But the fact that the stock isn’t trading higher on such good news means the news is built in to the stock, so what’s left to take them higher?”
MICHAEL HOLLAND, MONEY MANAGER, HOLLAND & CO, NEW YORK:
“Even though I was prepared for really good results, the magnitude of their success in trading I think is breathtaking.
“They are showing once again that they are the smartest guys in the room.
“What they have continued to do during the worst financial crisis in 25 years shows that they are the smartest guys in the room and, therefore, it doesn’t necessarily translate to the other people who are in the room.
“There is no question that Lloyd Blankfein and his team have differentiated themselves from the rest of the financial community with results like these.
“It is a tribute to their managing risk people if they can continue to do that.”
FRANCIS CAMPEAU, BROKER AT MF GLOBAL CANADA, IN MONTREAL:
“The headline numbers are great but the stock is down. It’s the classic case of buy the rumor, sell the fact.”
On the U.S. government bailout plan: “They want to make sure that the banks are making money, so they do make money. The flip side is one could argue they’re making too much.”
DAVID DIETZE, CHIEF INVESTMENT OFFICER, POINT VIEW FINANCIAL SERVICES, SUMMIT, NJ
“It’s very impressive, a huge beat. I think the trading operations were all systems go, that was supported by strong underwriting results.”
“I think that this is going to provide a nice shot in the arm of confidence generally for the market, particularly for the financials. I do caution investors that the Goldman business model is a little bit different, the focus is investment banking. They and Morgan Stanley are practically the only games left in town as others have gone by the wayside or are licking their wounds.”
“It will be interesting to see exactly how Goldman’s shares respond to this. The early read is a bit of a sell on the news. They’re up 77 percent so far this year, I think this may be a classic case of buy on the rumor and sell on the news. Obviously 77 percent for six to seven months is totally unsustainable, they’re still part of the economy, so I think it’s going to spell more good news for peers and wannabe peers than Goldman itself.”
DOUG ROBERTS, CHIEF INVESTMENT STRATEGIST, CHANNEL CAPITAL RESEARCH, SHREWSBURY, NEW JERSEY:
“The Goldman announcement indicates that they’re making a great deal of money, but the problem you tend to have with financials is that the rules aren’t fully set. One of the things that overhangs that is what’s the future going to be like? You also have another equation, which is what’s the government going to do? Goldman is now a bank, they’ve given back the TARP money, but they’re now into a whole different series of regulations than they were before. Goldman received a substantial amount of other benefits last fall, including a lot of the counterparty money that AIG received, so they’re kind of locked in with the government.”
WILLIAM LARKIN, FIXED INCOME MANAGER AT CABOT MONEY MANAGEMENT IN SALEM, MASS, WITH $375 MILLION IN ASSETS, AND AN OWNER OF GOLDMAN BONDS:
“Those are very strong numbers. Their market position was improved by the weakness of their competitors. That was sort of understood by the marketplace, and now it’s confirmed.”
“This gets discounted by the market from a projection standpoint because it was assumed to be strong.”
“If this earnings season goes well, there’ll be less political problems.” If it does not go well, “people are going to say: ‘You’re bailing them out but they’re not lending.’”
TODD LEONE, HEAD OF LISTED TRADING, COWEN & CO. IN NEW YORK
“The expectations were built into the stock yesterday and the volatility came out yesterday. Based on how it’s trading, the results look in line. People had big expectations for it after the upgrade, and I think it had its rally yesterday.
“I’m not sure why we’re paring right now, people might have been hoping for a little more from Goldman because of yesterday’s anticipation.”
RICHARD BOVE, ANALYST, ROCHDALE SECURITIES
“They outperformed everybody’s expectations which is not particularly unusual. When things are going well for the company, it does tend to overshoot on the upside. Trading was strong and investment banking was strong particularly in equities. Equities was the driver. I think it’s a pretty strong signal that other capital market companies will do well.
KEITH DAVIS, AN ANALYST AT FARR, MILLER & WASHINGTON, IN WASHINGTON D.C.
“They are pretty strong. They look like a blow out to me, but I don’t think it should be a big surprise to anyone.
“The environment is very conducive to the type of things they do. Spreads are very wide, fixed income and equity issuances have been pretty strong, so it doesn’t surprise me.
“The question would be now how repeatable are these results, how sustainable in this environment, and I think the run up in the stock suggests that a lot of these good news is probably already in the stock.
“You should see positive results from Morgan Stanley, the capital markets side of JPMorgan Chase, the capital markets businesses at Citi and some other large commercial banks as well, but Goldman is the best pure play.”
WILLIAM SMITH, CHIEF EXECUTIVE OF SMITH ASSET MANAGEMENT IN NEW YORK
“They’re terrific numbers...I think things are very fragile but they manage to make money in all environments which is what you’re supposed to do.”
“I think you’re going to see absolutely enormous numbers coming out of the money centers, including Citigroup.”
“The fact is that as you have stabilization and as credit spreads tighten, we still have a steep yield curve for the traditional banks and trading activity has exploded. These are things you need to happen. The toxic assets on the banks’ balance sheets all of a sudden aren’t so toxic. One by one you’re going out and shooting all the bear arguments... The fact is, these aren’t zombie banks, the toxic assets have proved not to be toxic -- more undervalued.”
“Goldman should be celebrated, not demonized.”
Reporting by Elinor Comlay, Mary Angela Rowe, Jonathan Spicer, Ryan Vlastelica, Sweta Singh and Juan Lagorio
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