Goldman Sachs: Earnings Home Run Winner

NEW YORK ( TheStreet) -- Goldman Sachs ( GS) was the winner among the largest U.S. banks on Wednesday, with shares rising 4% to close at $141.09.

Goldman blew past earnings expectations, reporting fourth-quarter earnings available to common shareholders of $2.833 billion, or $5.60 a share, with analysts polled by Bloomberg estimating that earnings would come in at $3.66 a share.

The firm's earnings increased from $1.458 billion, or $2.85 a share in the third quarter, and $978 million, or $1.84 a share, in the fourth quarter of 2011, with large increases in both debt and equity underwriting revenue; continued strength in institutional client servicing revenue, which was up 4% sequentially and 42% year-over-year to $4.342 billion; and increases of 9% sequentially and 126% year-over-year in investing and lending revenue, to $1.973 billion.

Credit Suisse analyst Howard Chen reiterated his "Outperform" rating for Goldman following the earnings announcement, while raising his price target for the shares by $15 to $160, saying "the beat was fairly broad based--better than expected investment banking, stronger FICC results, more in the way of principal investment gains/realizations and higher investment management revenues all supported by continued strong expense and capital management discipline."

Chen called the results "a solid end to the year for Goldman--2012 represented the first year of core revenue growth since 2009 with the firm achieving a 10%+ return on equity amidst a still challenging market backdrop."

JPMorgan Chase ( JPM) also beat analysts' expectations with a fourth-quarter profit of $5.7 billion, or $1.39 a share, while the consensus estimate among analysts polled by Thomson Reuters was $1.16. The company's shares rose 1% to close at $46.82. Please see TheStreet's earnings coverage for additional detail on JPMorgan's quarterly and annual results.

A Mixed Market

The broad indexes ended mixed as shares of Apple ( AAPL) recovered over 4% to close at $606.09, although shareholders will have to wait until next Wednesday for the company to announce results for its fiscal first quarter, ended Dec. 31.

Apple's shares look quite inexpensive, trading for 10.5 times the consensus fiscal 2013 EPS estimate of $48.34. It's not surprising that investors are jittery heading into earnings, as a slew of EPS estimate revisions will follow.

Pacific Crest Securities analyst Andy Hargreaves on Wednesday downgraded Apple to "Sector Perform" from "Outperform," saying that "high-end smartphone and tablet markets are rapidly approaching saturation, which, along with waning demand for incremental hardware innovation, is likely to pressure Apple's profit growth in the coming years." Hargreaves lowered his earnings estimate for the fiscal first quarter to $14.65 from $14.79, while lowering his fiscal 2013 EPS estimate to $41.85 to $45.13, and his fiscal 2014 EPS estimate to $43.92, to $47.70.

The analyst estimated a fair value for Apple's shares of between $440 and $550 over the next 12 months, and said that "on the upside, we believe continued strong demand for iPad and a modestly improved overall profit growth outlook exiting F2013 could support multiples that are on par with where AAPL traded exiting 2012, which was around 13x trailing-12-months EPS."

The KBW Bank Index ( I:BKX) was up slightly to close at 53.54, with 13 of the 24 index components showing gains.

Trust Banks Take It on the Chin

Trust banks stocks were weak, with Bank of New York Mellon ( BK) down 3% to close at $26.04, and shares of Northern Trust ( NTRS) sliding 6% to close at $49.78.

Bank of New York met analysts' expectations, reporting fourth-quarter EPS of 53 cents, declining from 61 cents a share in the third quarter, bur increasing from 42 cents a share, in the fourth quarter of 2011. The sequential earnings decline reflected lower interest revenue, mainly from "lower LIBOR rates, lower yields on the reinvestment of securities and lower accretion, partially offset by higher interest-earning assets driven by higher deposit levels."

Investment management and performance fees rose 9% sequentially and 17% year-over-year to $853 million. Bank of New York said that "both increases were impacted by the acquisition of the remaining 50% interest in the West LB Mellon Asset Management joint venture, subsequently renamed Meriten Investment Management," but that excluding the joint venture, "investment management and performance fees increased 15% year-over-year and 8% sequentially driven by higher market values, net new business and higher performance fees," in addition to lower waivers of money market fees.

Third-quarter operating revenue totaled $3.606 billion, declining from $3.650 billion the previous quarter, but increasing from $2.426 billion a year earlier. Jefferies analyst Ken Usdin rates Bank of New York Mellon a "Hold," with a $27 price target, calling the fourth quarter a "messy quarter overall and although core EPS is below $0.50/share, core revenues showed up stronger than expected (asset management/servicing most notably), which bodes well for forward estimates." The analyst added that "bears will point to $50mm of sec. gains as low quality, but they could prove sticky if mgmt. opts to harvest unrealized gains within the inv. portfolio."

Northern Trust reported fourth-quarter earnings allocated to common and potential common shares of $165.2 million, or 69 cents a share, missing the consensus estimate of a 74-cent profit. Earnings declined from $176.0 million, or 73 cents a share, in the third quarter, but increased from $128.6 million, or 53 cents a share, in the fourth quarter of 2011.

The sequential earnings decline mainly reflected an increase in noninterest expense to $741.5 million in the fourth quarter from $696.4 million in the third quarter, mainly reflecting "increased business promotion expense, higher charges related to account servicing activities, higher staff related expense, and the restructuring and integration related charges of $3.3 million." The year-over-year earnings improvement reflected an 18% increase in trust, investments and other servicing fees in the company's Personal Financial Services unit, to $278.3 million, as well as fourth-quarter 2011 restructuring, acquisition and integration charges of $61 million.

Usdin also rates Northern Trust a "Hold," with a $47 price target, saying that "as reported, the EPS run-rate of ~$2.80 is 15% below 2013 consensus ($3.30/ share), which exposes NTRS to negative estimate revisions."


-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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