Goldman Sachs on top of markets
NEW YORK -- Goldman Sachs Group on Thursday reported third-quarter results well ahead of Wall Street projections, as the world's largest investment bank took full advantage of its diversity to overcome a debt crisis. Rival Bear Stearns Cos. wasn't as lucky.
Faced with the worst credit markets that Wall Street has seen in a decade, Goldman said betting against the mortgage market helped it report a 79 percent boost in quarterly profit. Bear Stearns, the No. 5 U.S. investment bank, said it was on the wrong side of those bets and posted a 62 percent plunge in earnings.
Though both faced similar challenges during a period of tight credit conditions and continued erosion of the mortgage industry, analysts believe Goldman's surprise performance is linked to its diversity across both time zones and businesses. Meanwhile, Bear Stearns, which has pushed in recent years to broaden its scope, is still primarily known on Wall Street as a bond house.
"This is a standout performance by Goldman, which, based on these results, reinforces its leadership among U.S. investment banking players in terms of its ability to adapt and profit from changing environments," Deutsche Bank analyst Mike Mayo said in a client note after the results.
Goldman Sachs posted a quarterly profit of $2.85 billion, or $6.13 per share, up from $1.55 billion, or $3.26 per share, a year earlier. Revenue rose to $12.33 billion from $10.18 billion last year. Results topped Wall Street projections for a profit of $4.35 per share on $9.57 billion in revenue, according to analysts polled by Thomson Financial.
On a conference call, Chief Financial Officer David Viniar said disruptions in the mortgage market are "closer to the bottom" than at the start of the quarter, creating a measure of optimism.
"We are not pessimistic, we do not have a hiring freeze, we do not have a hiring slowdown," Viniar said.
At Bear Stearns, Chief Executive James Cayne called the quarter "painful" in a memorandum to employees, as revenue from fixed-income sales and trading activities, Bear's biggest business, plunged 88 percent. The company was the hardest hit by the collapse of the subprime mortgage market, which forced two of its hedge funds into bankruptcy and roiled the bond markets.
Third-quarter profit, after paying preferred dividends, tumbled to $166.1 million, or $1.16 per share, from a profit of $432.2 million, or $3.02 per share, in the third quarter of 2006. Revenue declined 37 percent to $1.33 billion.
Analysts expected Bear Stearns to post a profit of $1.78 per share on $1.64 billion of revenue.