Goldman Sachs third-quarter profit beats expectations on investment banking, trading
NEW YORK -- Goldman Sachs Group Inc. on Thursday reported third-quarter results well ahead of Wall Street projections, as the world's largest investment bank realized gains from takeover advice and the sale of its holdings in an energy company.
Goldman shares rose more than 2 percent in premarket trading on the news, and despite total credit losses of nearly $1.5 billion (?1.07 billion) related to the tightening markets for a broad range of debt.
Quarterly profit for the period ending Aug. 31 rose to $2.85 billion (?2.04 billion), or $6.13 per share, compared to $1.55 billion (?1.11 billion), or $3.26 per share, a year earlier. Revenue soared 63 percent to $12.33 billion (?8.82 billion) from $10.18 billion last year.
Results topped Wall Street projections for a profit of $4.35 per share on $9.57 billion (?6.85 billion) in revenue, according to analysts polled by Thomson Financial.
Goldman said investment banking produced record quarterly revenue of $2.15 billion (?1.54 billion) during the quarter, powered by its business in advising on takeovers. Meanwhile, stock trading also racked up a record $3.13 billion (?2.24 billion) of revenue during the period.
The investment bank also benefited from the nearly $1 billion (?720 million) sale of its interest in Horizon Wind Energy LLC.
Goldman, like others on Wall Street, said it had "significant losses" on subprime loans and mortgage-backed securities. However, short positions on mortgage securities allowed it to offset those losses.
It said it took $1.71 billion (?1.22 billion) in credit losses in the quarter _ including loans extended for leveraged buyouts. However, that amount was reduced to $1.48 billion (?1.06 billion) due to hedging activity.
"Given the difficult environment of the third quarter, many of our businesses were challenged," said Lloyd C. Blankfein, chairman and chief executive officer. "But overall, the quality of our franchise produced strong results as clients continue to look to us for advice and execution."
Blankfein, who became chief executive in June 2006, has said in the past that Goldman intends to take advantage of tightening credit markets to scoop up distressed debt at bargain prices.
During the quarter, Goldman Sachs pumped money into one of its hedge funds after a steep decline in value. It poured $2 billion (?1.43 billion) into the flagship Global Alpha fund, while other investors added an additional $1 billion (?720 million).
The fund was hit hard when its computer-driven "quantitative" investment strategies were disrupted by triple-digit swings in the financial markets. Goldman Sachs called the move a good investment opportunity, and not a bailout.
Goldman also counts more than half of its revenues coming from overseas, which reflects the investment bank's diversity. In addition, it has the lowest percentage of exposure to the subprime market compared to rivals.