NEW YORK (
shares hit their lowest levels since July despite a strong quarterly performance from the company on fears that proposed new federal regulations for the financial sector could hurt key businesses for it and other large banks like
Bank of America
While the fourth-quarter conference call was going on, President Obama announced the widely reported proposals that would limit the size of banks and possibly place restrictions on profitable activities like proprietary trading and private equity investing. While Obama's announcement was expected, it was clearly a distraction during the call, as analysts, including Calyon Securities' Mike Mayo, indicated they were listening to both the President and Goldman CFO David Viniar at the same time. Perhaps in an awkward attempt at humor, Viniar noted that he was unable to do the same thing.
Mayo then pressed Viniar for details about how much of Goldman's revenues came from proprietary trading. In an unusually detailed answer, Viniar said it was roughly 10% but could change from year to year. Mayo later jumped back on the line to clarify whether Viniar meant 10% of trading revenues or total revenues.
"I meant to say 10%, roughly, plus or minus a couple of percent, that moves around year to year, of revenues," Viniar said, adding, as Mayo sought more clarification, "this is why I hate answering this question. You know, it doesn't just depend on the proprietary revenues; it depends on everybody else's revenues and so you know it
Fears, however misguided they may be, that Goldman could lose 10% of its revenues, appeared to be the reason Goldman shares hit $156.77-- their lowest level since July 17-- before rebounding somewhat to $158.32 in recent action. Still the plus 5% drop was significant and it came on heavy volume of more than 33 million, a level that was moving toward eclipsing the issue's trailing three-month daily average of 8.7 million by more than four times. The other banks were following suit with Bank of America off nearly 8%, Citigroup down 7%, Wells Fargo sliding 1%, and Morgan Stanley losing more than 5%.
Despite the selloff and the regulatory concerns, Goldman's earnings were solid, even if they were buoyed by the bank's surprising decision to set aside no additional cash compensation for the fourth quarter -- a nod to the fact that the company has become a lightning rod for critics of Wall Street pay over the past year.
Compensation and benefits totaled $16.19 billion for the full year, and Goldman said that its 35.8% ratio of compensation to total revenue was the lowest annual ratio on this basis in its history. The company said compensation and benefits totaled a negative $519 million for the fourth quarter, reflecting the impact of a $500 million charitable contribution.
In a press release before the opening bell, the company reported net income of $4.95 billion, or $8.20 a share, for the three months ended Dec. 31, up markedly from both a third-quarter profit of $3.19 billion, or $5.25 a share, and its loss of $2.12 billion, or $4.97 a share, in the year-ago equivalent period, which is the three months ended Nov. 28 as Goldman has since changed its reporting schedule to a calendar-year format.
Revenue totaled $9.62 billion for the latest quarter, a performance that represented a decrease from $12.37 billion in the third quarter, as the contribution from the company's trading and principal investments business shrank to $5.05 billion in the latest quarter from $8.8 billion in the third quarter. Investment banking revenue was up, however, in the latest quarter, coming in at $1.64 billion, 82% above the total in the third quarter and 58% higher than the same period a year ago.
The average estimate of analysts polled by
was for earnings of $5.20 a share in the December period on revenue of $9.65 billion.
Concerns about the company's fixed income, currency and commodities, or FICC, operations, which are housed in the trading and principal investments business, had prompted a number of analysts to lower their earnings estimates for Goldman in the weeks leading up to the fourth-quarter report, and the company reported a hefty sequential decline in this area. Revenue from the FICC business totaled $3.97 billion in the fourth quarter, down more than 30% from $5.99 billion in the third quarter.
Goldman said the FICC business "operated in an environment characterized by generally lower client level activity levels than earlier in the year, continued tightening of credit spreads and improving asset values."
"Despite significant economic headwinds, we are seeing signs of growth and remain focused on supporting that growth by helping companies raise capital and manage their risks, by providing liquidity to markets and by investing for our clients," said Lloyd Blankfein, the company's CEO and chairman, in a press release.
Goldman's Tier 1 capital ratio stood at 15% as of Dec. 31, and its Tier 1 common ratio was 12.2%.
Written by Michael Baron and Dan Freed in New York