Wednesday, December 17, 2008
Goldman Sachs Group yesterday reported a fourth-quarter loss of $2.12 billion, its first since going public in 1999, as the most profitable of Wall Street's biggest firms succumbed to the global credit crisis.
The loss of $4.97 a share in the three months ended Nov. 28 was smaller than analysts' most pessimistic estimates, and the company's shares rose 14.4 percent, or $9.54, to close at $76 on the New York Stock Exchange. The firm reported net income of $3.22 billion, or $7.01 a share, in the corresponding period a year earlier.
Chief executive Lloyd C. Blankfein, who led the firm to its lowest annual earnings since 2002, gave up his bonus after converting Goldman Sachs to a bank-holding company and accepting $10 billion in bailout funds from the U.S. government. The firm, which set a Wall Street profit record in 2007, has cut 10 percent of its workforce as its stock has plummeted 65 percent this year and revenue fell by half.
"I think people are just happy that it's not a disaster," said Len Blum, a managing partner at Westwood Capital, a closely held investment bank in New York. "This is the best of the bunch, and that just shows how weak the expectations are for the sector."
Glenn Schorr, an analyst at UBS in New York, had estimated Goldman Sachs would post a loss of $5.50 a share. The average estimate of 18 analysts surveyed by Bloomberg was for a loss of $3.73 per share.
Goldman Sachs's book value per share, an indication of how much value would be left if assets had to be liquidated, declined to $98.68 in the fourth quarter from $99.30 at the end of August. Its return on equity, a gauge of how effectively the firm invests earnings, dropped to 4.9 percent for the year from 32.7 percent in 2007.
"Our results for the fourth quarter reflect extraordinarily difficult operating conditions, including a sharp decline in values across virtually every asset class," Blankfein said in the statement.
Moody's Investors Service lowered its long-term credit rating on Goldman Sachs to A1 from Aa3 after the earnings were released, citing the "ongoing credit-market crisis" and a "persistent difficult operating environment."
Fourth-quarter revenue was negative $1.58 billion because of write-downs, compared with revenue of $10.74 billion a year earlier, while revenue for the full year slumped 52 percent to $22.22 billion from $45.99 billion in 2007.
Compensation and benefits, the biggest expense, fell to a negative minus-$490 million for the quarter as the firm took back some of the money it had set aside for pay earlier in the year. That brought the full-year cost to $10.93 billion, down 46 percent from a record $20.19 billion in 2007. The firm eliminated 2,500 jobs during the quarter and cut average pay per employee 45 percent to $363,654.
For the year, earnings were down 80 percent, to $2.32 billion ($4.47 a share) from $11.6 billion ($24.73 a share) in 2007.