Goldman Soars on Earnings Beat

Updated from 10:16 a.m. EDT

Goldman SachsGS shares surged as much as 21% after the financial titan reported earnings that beat analysts' estimates, tempering investors' concerns about further writedowns and liquidity problems at the big brokers.

Still first-quarter earnings dropped by half, amid a worsening economic environment.

The New York-based brokerage firm made $1.51 billion, or $3.23 a share, in the three months ending Feb. 29, down from $3.2 billion, or $6.67 a share, a year earlier. Revenue dropped 34.5% from a year earlier and by 22% from the fourth quarter to $8.34 billion, Goldman said.

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Shares, which soared as high as $172, were most recently up $19.68, or 13%, to $170.70. Analysts expected Goldman would make $2.58 a share, according to the latest estimates from Thomson Financial.

"Market conditions are clearly very difficult," Chairman and CEO Lloyd Blankfein said in a press release. "But we saw strong customer activity across many of our franchise businesses in the first quarter. Although market conditions present many challenges at the moment, they also offer considerable opportunities."

Speaking on a conference call to discuss first quarter earnings, Goldman Sachs' CFO David Viniar said the firm's liquidity position "is stronger than it has ever been before."

Goldman's pool of cash and cash equivalents averaged in the $60 billion range in the fourth quarter has been "significantly higher" than that in the first quarter, Viniar said. Additionally, most of the firm's short-term financing "is actually termed out," so the company has "little rollover risk," he added.

Viniar said the Federal Reserve's announcement in light of the Bear Stearns collapse that broker-dealers would be able to access the discount window directly is "a very good thing" and "will help our liquidity as well as the liquidity in the market."

Revenue from Goldman's trading and principal investments -- the bread and butter of its business -- was cut by nearly half from a year earlier to $5.12 billion.

The company said it had net losses on residential mortgage loans and securities of approximately $1 billion in the quarter. It also recorded a $1 billion loss ($1.4 billion before hedges) on credit products, primarily related to non-investment grade credit origination activities, as well as lower results from investments compared to a year earlier.

Goldman's leveraged loans at the end of the quarter totaled $27 billion, approximately $9 billion of which were unfunded. That compares to $43 billion at the beginning of the quarter, when it held $26 billion of unfunded loans.

Regarding its mortgage exposure, Viniar said that the writedowns came mostly from declining values on Alt-A loans and some prime loans.

At the end of the quarter, the company had $12 billion of prime loans, $5 billion of Alt-A loans and $2 billion of subprime loans. Viniar was quantifying only the company's long assets.

Goldman also said that it recorded a loss of $135 million on its investment of Industrial and Commercial Bank of China and other principal investments.