Goldman Sachs profits fall by a fifth - but it's good news

Goldman Sachs' net earnings for Q1 2011 dropped no less than 21% - but still comfortably beat expectations...

by Dave Waller
Last Updated: 19 Apr 2011
Everybody's favourite wall Street behemoth has been at it again: Goldman Sachs' latest quarterly results came in well ahead of expectations, allowing it to set aside more than $5bn to pay its staff. OK, so its net earnings of $2.74bn were more than a fifth down on its total for the same period last year, as revenues in its key trading divisions suffered by comparison. And its net revenues of $11.99bn were 7% down on last year. But that was still a lot better than some analysts had been expecting. You can't keep a good money-making machine down...

One of the reasons for the drop in revenues was that Goldman decided to buy back the $5bn of preferred stock super-investor Warren Buffett bought at the height of the financial crisis; this cost the bank a cool $1.6bn (another great call by the Sage of Omaha). But its traders also found it difficult to match last year's stellar showing: revenues were down by about a quarter in both its equity trading arm and its all-conquering fixed income division.

But if shareholders may be displeased, Goldman's largely pecunious staff won't have too much cause for complaint: although their total compensation pot is down by 5%, it's still a whopping $5.2bn - equivalent to 44% of Goldman's revenues.

And despite the bottom line being so far down on last year, the results were actually much better than Wall Street expected (and much better than the previous quarter, in which profits plummeted 52% year-on-year). Since many of the challenges with which Goldman is currently grappling are affecting everyone in the sector, many of its rivals would love to be pulling numbers like these at the moment.

Indeed, glass-half-full types might even view Goldman’s performance as cause for optimism. The announcement by rating agency Standard & Poor's that it wastaking  a negative outlook on the US government's triple-A credit rating has taken its toll on all US stocks this week. But when a wall Street bellwether like Goldman is beating expectations - even if they're low expectations - maybe it’s a sign of better things to come.

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