Goldman Sachs did it again. Now the question is whether the Wall Street bank can do it again and again.
The company capped another record year on Tuesday with a modest gain in fourth-quarter earnings, prospering amid the financial tumult that has hurt many of its rivals. But investors are growing increasingly worried that Goldman, which raced ahead as the mortgage crisis tore through Wall Street, will fail to match this year's performance next year.
David Viniar, Goldman's chief financial officer, reinforced those concerns on Tuesday by saying he was "cautious" about the short-term outlook although bullish for the longer term. Goldman stock slumped even though the latest results topped analysts' forecasts.
For now, Goldman and its employees have much to celebrate. Helped by big one-time gains, fourth-quarter earnings increased 2.2 percent, to US$3.2 billion, or US$7.01 a share, handily beating the US$6.61 a share expected by analysts surveyed by Thomson Financial. That put the company's earnings for the year up 21 percent, to US$11.4 billion, or US$24.64 a share.
During the latest quarter, many of Goldman's core businesses were battered along with those of its competitors.
While analysts applauded the company's ability to weather the mortgage market crisis, many focused on how hard it will be to replicate these successes next year.
"It certainly looks like Goldman Sachs is not immune to the laws of gravity," said Brad Hintz, a securities industry analyst at Sanford C. Bernstein.
Hintz also said that Goldman Sachs' fixed income and equities businesses suffered during the fourth quarter, while new investment banking deals were smaller than those that closed during the previous quarter.
David Hendler, an analyst at CreditSights, a securities research firm, said that the firm's bearish bets on mortgages, which buoyed its third-quarter results and cushioned the pain in the fourth quarter, carried too many risks.
"They got through it this time, but we think a better posture is to not load up on the risk so you don't have to rely on the Houdini hedge escape, which is what they did," Hendler said.
For the fourth quarter, net revenue totaled US$10.7 billion, an increase of 14 percent from a year earlier and down 13 percent from the previous quarter.
Compared with the period a year ago, Goldman reported a 98 percent increase in financial advisory revenue, a 26 percent decline in principal investments and a 39 percent surge in equities, which Viniar said came from Goldman's clients' business and its proprietary trading.
But the fourth quarter paled in comparison with the third quarter, when profit surged 79 percent.
Revenue from financial advisory fell 12 percent during the fourth quarter while overall investment banking revenue tumbled down 8 percent when compared with the third quarter.
Fixed income, currencies and commodities fell 32 percent, even though that unit was helped by an US$800 million gain from the sale of Goldman's stake in Cogentrix Energy Inc.
Equities fell 17 percent, corporate and real estate investments decreased 29 percent and asset management revenues stumbled 3 percent.
The latest results were helped by US$1 billion in private equity gains, as well as by gains on leveraged loans the firm was able to sell at a profit.
Goldman did not disclose any mortgage write-downs but said they were modest for the year and were offset by the firm's bearish bet on the mortgage sector.
Goldman's stock fell US$7.12, or 3.4 percent, to $201.51 in New York trading on Tuesday.
CLOSE ENCOUNTERS: Several of the PLA fighter jets that crossed the median line of the Strait came within 68km of Hsinchu, drawing warnings from Taiwan, the ministry said At least 18 Chinese military aircraft yesterday flew into the nation’s air defense identification zone (ADIZ) on the second day of a US delegation’s visit, the Ministry of National Defense said, adding that the military responded by deploying an air defense missile system to monitor their activities. A delegation led by US Undersecretary of State for Economic Growth, Energy and the Environment Keith Krach on Thursday started a three-day visit to Taiwan. The ministry from Thursday started publicizing the actions of the Chinese People’s Liberation Army (PLA) in Taiwan’s ADIZ on its Web site and Twitter. According to ministry reports, 18 PLA aircraft
TWO CASES: The five allegedly conspired with conglomerates, threatening the nation’s governance and subverting the rules of ethical conduct, a deputy chief prosecutor said Taipei prosecutors yesterday charged three legislators and one former lawmaker with contravening the Anti-Corruption Act (貪污治罪條例) in a case linked to former Pacific Distribution Investment Co (太平洋流通) chairman Lee Heng-lung’s (李恆隆) battle with the Far Eastern Group (遠東集團) over ownership of the Pacific SOGO Department Store (太平洋崇光百貨) chain, while independent Legislator Chao Cheng-yu (趙正宇) was indicted in a separate case involving two funeral services companies and a plot of land in a national park. Chinese Nationalist Party (KMT) legislators Chen Chao-ming (陳超明) and Sufin Siluko (廖國棟), Democratic Progressive Party (DPP) Legislator Su Chen-ching (蘇震清) and former New Power Party legislator
Swedish Member of Parliament Hampus Hagman is pushing for changing the name of the nation’s trade office in Taipei to signal improved relations with “Asia’s perhaps foremost democracy.” Hagman on Wednesday last week proposed renaming the Swedish Trade and Invest Council to “Sweden’s Office in Taipei,” following similar changes by other nations. The Swedish Trade and Invest Council, part of Business Sweden, is owned by the Swedish government and Swedish industry. Taiwan and Sweden share important values such as respect for democracy, human rights, the rule of law and freedom of speech, Hagman said in the motion, adding that the two nations
PENGHU INSPECTION: Taiwan cannot let its enemies strut around in its airspace, Tsai said, one day after a Chinese spokesman denied a median line exists in the Taiwan Strait Following China’s assertion on Monday that there is no “median line” in the Taiwan Strait, President Tsai Ing-wen (蔡英文) yesterday pledged to defend the nation’s airspace during a visit to an air force base in Penghu, saying that Taiwan cannot allow others to flex their military muscle in its territorial airspace. Tsai praised the “heroic performance” of the pilots of the Indigenous Defense Fighters who have been intercepting Chinese People’s Liberation Army Air Force planes in recent days. “I have a lot of confidence in you. As soldiers of the Republic of China [ROC], how could we let enemies strut