Another earnings disclosure, another bank tops estimates. The latest benefactor of improving market conditions is Goldman Sachs (NYSE: GS), which easily beat analysts’ forecasts again. The bank did see a big slowdown in trading, it’s most profitable business, but still came in with strong results.
After paying preferred dividends, net income fell 43 percent from the same period a year ago. This drop is fueled by a fall in revenue in the bank’s bond, currency, and commodity trading division. Goldman’s income fell to $1.74 billion, or $2.98 per share. During the third quarter last year, the firm earned $3.03 billion, or $5.25 per share. The consensus estimated from Thomson Reuters was for $2.32 per share. Even though revenue fell 28 percent, it still came in well ahead of analyst forecasts. Following the news, shares in Goldman jumped 3% in morning trading, despite a broad market decline.
The news of beating estimates is a bit inflated though – a month ago analysts’ average forecast was for income of $3.05 per share, but that was slashed many times in the week’s leading up to disclosure as market conditions worsened and investor confidence fell. With interest rates at historic lows, and a decline in market volatility, Goldman’s trading volume fell during the third quarter precipitously. The low interest rate environment did benefit the investment banking division though, as many companies eagerly issued new debt to take advantage of the low cost of funds.
During the financial crisis, the bank was strongly criticized for giving out huge paychecks even after receiving government aide – in response, the firm has been reducing compensation costs and that figures in to the improved results. In total, the firm has shown a 21% decrease in compensation during the first nine months of 2010, as compared to the same period of 2009. LAst year, compensation was 47 percent of the company’s revenue, while this year the ratio has fallen to 43 percent.
Amidst regulatory reforming, and a still sagging market, Goldman continues to face a myriad of challenges. But, the firm is poised for growth and seems to be on the right track with these strong quarterly results.
