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.
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