Published July 15, 2009

Goldman romps home with profit surge

Strong underwriting, trading businesses boost Q2 earnings

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(NEW YORK) Goldman Sachs Group Inc said yesterday that its second-quarter profit easily surpassed expectations as profit was buoyed by strength in its trading and underwriting businesses.

Long considered one of the strongest banks in the financial sector, analysts widely expected Goldman's profit to continue its rebound. Goldman posted a quarterly loss during the final quarter of 2008 amid the mushrooming credit crisis before returning to profitability in the first three months of 2009.

During the quarter ended June 26, the New York-based banking giant earned US$2.72 billion, or US$4.93 per share, after preferred stock dividends.

Goldman recorded a charge of 78 US cents per share as it repaid the government's US$10 billion investment in the bank as part of the Troubled Asset Relief Program. The bank had previously announced it would be taking the charge during the second quarter.

Goldman is the first bank to report second-quarter earnings, and analysts predict other banks' results may not be as strong. Others face greater loan losses because of their focus in retail banking, and their more conservative approach to business after the credit crisis was seen to hinder a return to strong profits.

Bank of America Corp and Citigroup Inc have been among the hardest hit by loan losses and have yet to repay government bailout funds. JPMorgan Chase & Co has repaid the government, but still remains saddled with rising consumer loan losses. All three banks report results later this week.

Goldman's results were even better than its fiscal second quarter last year. For that period, which ended May 30, Goldman reported a profit of US$2.05 billion, or US$4.58 per share. Goldman shifted its quarterly reporting periods after changing its regulatory structure to become a bank holding company last fall amid the deepening credit crunch.

Analysts polled by Thomson Reuters, on average, forecast earnings of US$3.54 per share for the quarter on revenue of US$10.66 billion.

Goldman's second-quarter net revenue totalled US$13.76 billion. It generated US$9.42 billion in revenue during its fiscal second quarter last year.

The bank reported a record US$6.8 billion in revenue from fixed income, currency and commodities trading during the quarter.

Particularly strong trading in credit and interest rate products and currencies help boost Goldman's fixed income, currency and commodities trading. Equities trading revenue totalled US$3.18 billion during the quarter due in part to stronger trading in derivatives.

It generated US$811 million in revenue from principal investments.

After credit markets nearly shut down last fall, equity and debt markets began to recover during the spring as investors optimism for an economic recovery began to grow. During that recovery, companies that had been stretched for capital flooded equity and debt markets with new offerings to raise sorely needed cash.

Goldman was able to take advantage of that crush of offerings, generating record net revenue of US$736 million from underwriting equity offerings during the quarter. Total underwriting revenue, which also includes underwriting debt offerings, totalled US$1.07 billion during the quarter.

Goldman's profit would have been better had it not been for a charge taken to repay the government investment.

In early June, Goldman became one of the first banks to repay the government TARP funds it received. The government provided banks with capital in exchange for preferred stock and warrants to purchase common shares. The programme was launched last fall after Lehman Brothers collapsed and insurer American International Group Inc needed a government bailout to remain in business. -- AP