Goldman Sachs (GS), the biggest of the Investment Banks, reported earnings on the heels of a Lehman Brothers (LEH) beat and a Morgan Stanley (MS) fall, and did it ever show who rules Wall Street. Goldman reported earnings of $6.13/share versus the average estimate of $4.35 and a high estimate of $5.08. Now that's an earnings beat!
Goldman was all over the headlines during the sub-prime meltdown for its flagship Alpha Fund and its negative performance, but the trading giant turned around those losses and made a killing betting against mortgages. The results, net income of $2.85Billion, a 79% increase, revenue of $12.3Billion, a 63% increase, and the undoubted respect of Wall Street.
Bear Stearns (BSC) did not fare as well, seeing earnings slide 61% year over year. Morgan Stanley saw declines also. Goldman showcased its ability to react to trouble and create investment opportunities out of volatility and panic, particularly in this quarter. Shares have been rising since lows around $170 and shot up to $210 as the numbers were announced. However profit taking and general market trends dragged Goldman back down to $203.
I previously wrote a couple things about Goldman Sachs with the latest being an August 9th article (Link) regarding the Alpha Fund losses. Within this piece I weighed the negatives and the potential positives, stating that in fact I think Goldman Sachs had found a bottom. Additionally, I outlined that this earnings number would be crucial in sending GS in the right direction and I ended by suggesting that "the plan that Goldman has in motion should lead it to calmer seas well ahead"
As for those losses. Goldman did book about $1.7Billion in credit losses but more than made up for that in other trading and underwriting business. In fact equity trading revenue more than doubled to $3.1Billion. In asset-management, even though a couple big funds lost more than 20%, Goldman was able to compensate by increasing management fees by up to 40%. When you can increase your fees by almost half when you're doing poorly, you've got what's called Business Clout! Something that simply can not be challenged by every other Investment Bank on the street.
It appears that Goldman has found these calmer seas even quicker than I would have anticipated and now I don't think that all time highs during the holiday run up are out of the question. A company this effective at profiting from market turmoil, slowdown fears and general economic panic, is something worth owning. At around $200 it may just be a very handsome Christmas steal also.
Disclosure: Author is long GS
Goldman was all over the headlines during the sub-prime meltdown for its flagship Alpha Fund and its negative performance, but the trading giant turned around those losses and made a killing betting against mortgages. The results, net income of $2.85Billion, a 79% increase, revenue of $12.3Billion, a 63% increase, and the undoubted respect of Wall Street.
Bear Stearns (BSC) did not fare as well, seeing earnings slide 61% year over year. Morgan Stanley saw declines also. Goldman showcased its ability to react to trouble and create investment opportunities out of volatility and panic, particularly in this quarter. Shares have been rising since lows around $170 and shot up to $210 as the numbers were announced. However profit taking and general market trends dragged Goldman back down to $203.
I previously wrote a couple things about Goldman Sachs with the latest being an August 9th article (Link) regarding the Alpha Fund losses. Within this piece I weighed the negatives and the potential positives, stating that in fact I think Goldman Sachs had found a bottom. Additionally, I outlined that this earnings number would be crucial in sending GS in the right direction and I ended by suggesting that "the plan that Goldman has in motion should lead it to calmer seas well ahead"
As for those losses. Goldman did book about $1.7Billion in credit losses but more than made up for that in other trading and underwriting business. In fact equity trading revenue more than doubled to $3.1Billion. In asset-management, even though a couple big funds lost more than 20%, Goldman was able to compensate by increasing management fees by up to 40%. When you can increase your fees by almost half when you're doing poorly, you've got what's called Business Clout! Something that simply can not be challenged by every other Investment Bank on the street.
It appears that Goldman has found these calmer seas even quicker than I would have anticipated and now I don't think that all time highs during the holiday run up are out of the question. A company this effective at profiting from market turmoil, slowdown fears and general economic panic, is something worth owning. At around $200 it may just be a very handsome Christmas steal also.
Disclosure: Author is long GS
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