Goldman Sachs, in another sign that banks may be turning around, beat Wall Street’s earnings expectations as it reported a profit of US$1.66 billion for the first three months of this year. The bank also said it planned to raise US$5 billion in stock to help it pay back government bailout funds.
The New York-based bank said it earned US$3.39 per share, easily surpassing analysts’ forecasts for profit of US$1.64 per share. This compares with earnings of US$1.47 billion, or US$3.23 per share, in the quarter ended Feb. 29 of last year.
Goldman’s news, released a day earlier than anticipated, came days after another top-performing bank, Wells Fargo & Co, said it expected to report record first-quarter earnings of US$3 billion, well above Wall Street’s estimates. Investors showed some caution after Goldman’s announcement, which followed the close of regular trading on Wall Street. Goldman shares initially rose in response to its report but then slipped 1.5 percent.
Goldman said profit was bolstered by strong revenue growth in its fixed income and currency businesses. The Treasury market and the dollar were beneficiaries of investor uncertainty during the first two months of the year; last month, the stock market began a five-week rally that lifted the major indexes off 12-year lows.
Results improved significantly over the fourth quarter, when Goldman reported its first quarterly loss since becoming a public company in 1999. Hurt by the plunging value of its investments, especially at its principal trading desk, the firm lost US$2.29 billion during that period.
When Goldman became a bank holding company last fall amid the mushrooming credit crisis, it switched its reporting cycle so its fiscal quarters were in line with calendar quarters beginning Jan. 1. To adjust its reporting schedule, Goldman began fiscal 2009 on Jan. 1 instead of Dec. 1 of last year. The bank said for the month of December, which fell between the change in reporting cycles, it lost US$1 billion, or US$2.15 per share.
Goldman’s first-quarter performance put it in a strong enough position to plan the public stock offering of US$5 billion which it said would be used, with additional resources, to pay back its government debt. Goldman received US$10 billion in government funds during the downturn last fall as part of the US Treasury Department’s program to invest directly in hundreds of banks and try and help alleviate the nearly frozen credit markets.
Goldman executives have said for months that the company wanted to repay bailout funds this year. Many banks have chafed under restrictions, including limits on executive compensation, imposed by the government as it dispensed the bailout money. The banks have also come under sharp criticism from lawmakers and the public for a variety of business practices.
Its earnings improvement lends support to what bank CEOs have been saying in recent weeks: That business conditions have started to stabilize.