Subprime Worries Hit Goldman

Shares sink in sympathy with the Bear Stearns miss.
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Goldman Sachs (GS) - Get Report posted another huge quarter, but shares gave ground as investors resumed their fretting about the decline of the subprime mortgage business.

For the second quarter ended May 25, New York-based Goldman made $2.33 billion, or $4.93 a share, up from the year-ago $2.31 billion, or $4.78 a share. Net revenue slipped to $10.18 billion from $10.24 billion a year earlier.

Analysts had expected earnings of $4.79 a share on revenue of $10.16 billion, according to Thomson First Call.

"The outlook for the global economy remains strong. Favorable market conditions and investor confidence continue to drive activity levels and play to our strengths as a leading adviser, financier and investor," said CEO Lloyd Blankfein. "We are pleased with the results for the second quarter."

Investment-banking revenue rose 13% from the year-earlier period to $1.72 billion.

But net revenues in trading and principal investments were $6.65 billion, 6% lower than the second quarter of 2006 and 29% lower than the first quarter of 2007.

Net revenues in fixed income, currency and commodities were $3.37 billion, 24% lower than the second quarter of 2006, primarily reflecting lower net revenues in commodities and weak results in mortgages, principally attributable to continued weakness in the subprime sector.

The news comes as Goldman's smaller rival

Bear Stearns

(BSC)

posted a weak quarter, hit by declines in the subprime lending business.

Lehman

(LEH)

also posted soft numbers in that business but reported such strong gains elsewhere that it was able to blow away estimates in its earnings report Tuesday.

Early Thursday, Goldman fell $5.87 to $227.73.