Updated with Goldman's latest share price, additional performance information, conference call comments.
NEW YORK (
delivered impressive first-quarter earnings Tuesday, driven by surging trading revenue, but the stock was sidelined in midday action by investor concerns about the SEC's civil fraud charges against the company.
Goldman Sachs CEO Lloyd Blankfein
"Our performance in the first quarter reflects more signs of growth across the economy and the strength of our client franchise," said Chairman and CEO Lloyd Blankfein, in a statement accompanying the numbers. "While we are encouraged by growth prospects for the economy, we continue to put a premium on strong capital and liquidity levels, and disciplined risk management."
Blankfein didn't participate in the call, which the company made the unusual decision to open up to the public. Instead, Greg Palm, Goldman's general counsel, was center stage, along with Chief Financial Officer David Viniar. Palm fielded questions and provided background on the developments that led to Friday's charges, which roiled the markets and sent Goldman shares into a nosedive.
"We do not in any way dispute the necessity and the importance of the SEC's role in protecting investors and supporting fair, orderly, and efficient markets," said Palm in opening remarks. "Our dispute is with regard to their respective view of the facts in this case and the applicable law."
One exchange that could
was when Palm admitted Goldman had introduced John Paulson, whose hedge fund Paulson & Co. took the short side of the synthetic CDO
collateralized debt obligations trade, and ACA Capital Management, the largest investor on the long side of the deal. The crux of whether Goldman is culpable may lie in how it represented Paulson's role in the transaction to ACA.
The dispute was for the moment overshadowing a quarter that saw Goldman hitting on most, if not all cylinders. The company reported first-quarter earnings of $3.46 billion, or $5.59 a share, on revenue of $12.78 billion, well ahead of the average estimate of analysts polled by
for earnings of $4.01 per share on revenue of $11.1 billion in the three-month period.
The latest results compare to earnings of $3.39 a share on revenue of $9.43 billion in the year-ago equivalent quarter, and a profit of $8.20 a share on revenue of $9.62 billion in the fourth quarter.
Revenue for the company's trading and principal investments business totaled $10.43 billion for the quarter, up 60% on a sequential basis and 43% year-over-year. The company's FICC
fixed income, currencies, and commodities trading revenue, reflecting strength in credit products, mortgages and currencies, rose 13% year-over-year to $7.39 billion.
The strong revenue from trading compensated for a blip in the investment banking business, which grew revenue by 44% year-over-year to $1.18 billion but that figure was nearly 30% below its fourth-quarter total. Also, Goldman's asset management and securities services unit reported revenue of $1.34 billion, declining on both a year-over-year and sequential basis.
Another closely watched number for Goldman is its compensation and benefits ratio, and while that total accrual figure of $5.5 billion for the quarter was still a jawdropper that won't play well on Main Street, the company did note that its ratio to net revenue was down to 43% from 50% a year earlier.
But the stock could remain stalled until Wall Street gets a handle on just how serious the charges are for Goldman, and the rest of the big financials, which reportedly could face similar scrutiny. There is also a feeling that the SEC's charge will embolden legislators still hammering away at regulatory reform for the industry and eventually result in a bill with more teeth than most observers were expecting, especially when it comes to derivatives trading, which the charges relate to.
And while the legal costs could become a source of concern, especially if other governments or trading partners, such as
American International Group
, start to pile on with their own allegations and inquiries, there seems right now to be more hand-wringing about the potential for Goldman to take a hit to its reputation if it's found to have been dealing against clients, although to what extent that would show up in the bottom line is debatable.
Goldman shares were down 1% to $161.74 in recent trades after rising as high as $166.71 earlier in the day.
Written by Michael Baron in New York