Skip to main content

Goldman's Earnings Could Take Backseat

Goldman Sachs is reporting its first-quarter results early Tuesday, but the company's performance is likely to be overshadowed by its defense against the SEC's fraud charges.
  • Author:
  • Publish date:



) --

Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. Report

is reporting its first-quarter results early Tuesday but the company is expected to spend most of its time mounting a defense against the bombshell charges levied against it by the

Securities and Exchange Commission

on Friday.

Goldman CEO Lloyd Blankfein

Goldman has been


about telling its side of the story so far, and Monday it made the decision to move the call up to 8:00 AM ET and said that Greg Palm, its general counsel, will be on hand to answer questions about the SEC's complaint. Goldman has also opted to open the call up to the public, suggesting an increasing awareness that the biggest threat to its future may come from public opinion.

The rhetoric has ramped up to the point that former New York Governor Eliot Spitzer said on


Monday that he believes Goldman and the other large banks face an "existential threat," because, after accepting hundreds of billions of dollars in bailouts, "the public does not understand how what they do serves any social purpose."

"They create these crazy instruments. Why do we care?" Spitzer said.

Scroll to Continue

TheStreet Recommends

But aside from the political debate arising from the SEC's complaint, there is the expected financial impact on the company to consider.

Analysts at FBR Capital Markets reiterated an "outperform" rating on Goldman on Monday, but removed the bank from its list of top picks, citing the overhang of regulatory risk on the stock.

"Shares will likely feel near-term pressure from the risk of more negative headlines and the implications of the SEC's actions on the direction of the financial regulatory reform in coming weeks," FBR Capital said, adding that its rating and $190 price target are based on favorable fundamentals and its view that Goldman is able to grow book value quicker than peers such as

Morgan Stanley

(MS) - Get Morgan Stanley Report


The firm said it thinks the direct earnings impact of the SEC charges is "manageable," arguing the decline in Goldman's stock on Friday was outsized as it implied a pre-tax earnings hit of $2.4 billion when total investor losses on the transaction in question were only $1 billion.

Notwithstanding the political ramifications of the SEC's charge, Goldman should put up strong numbers. Trading is the most important ingredient to Goldman's bottom line, and the early read on where that number should come in is positive based on the performance of rivals

JPMorgan Chase

(JPM) - Get JPMorgan Chase & Co. Report


Bank of America

(BAC) - Get Bank of America Corp Report



(C) - Get Citigroup Inc. Report



(UBS) - Get UBS Group AG Report

is also expected to turn in a strong quarter in terms of trading performance, according to a

Bloomberg News

report last month, which cited unidentified "people familiar with the situation."

If Goldman were to somehow disappoint in this business after these other companies, who are generally considered to have weaker trading desks, have done so well, the stock would likely get hard. On the other hand, a strong trading performance isn't likely enough to be able to counter the overhang of the SEC charges in the near-term.

The average estimate of analysts polled by

Thomson Reuters

is for Goldman to report earnings of $4.01 per share for the three months ended in March on revenue of $11.1 billion. That performance compares 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.

Goldman shares turned around late Monday, and managed to finish up 1.6% at $163.20, and the impact a strong earnings performance could have on the stock cannot be discounted completely. Citigroup, which lost more than 5% in sympathy with Goldman on Friday, rebounded strongly on Monday after

reporting blowout first-quarter numbers


The difference is that Citigroup, unlike Goldman, is fighting off concerns that the institution is incapable of generating big profits. Few have any question about Goldman's abilities in that regard.


Written by Dan Freed in New York