Goldman Sachs Quarterly Profit Tops $3B

By Binyamin Appelbaum
Washington Post Staff Writer
Thursday, October 15, 2009; 11:21 AM

The investment bank Goldman Sachs said Thursday morning that it earned $3.19 billion from July through September, largely through the success of its investments.

The New York company has emerged as the great beneficiary of the government's massive efforts to revive Wall Street. Preserved from failure by federal aid, trading in markets revived by federal aid, Goldman has recorded some of the largest profits in its long history.

The company's third-quarter earnings amounted to $5.25 a share, compared with $845 million or $1.81 a share during the same period last year. On Wall Street, the company's shares were down 1.5 percent to $189.34 in early trading.

Chief executiveLloyd C. Blankfein, said in a statement that the numbers were an indication that the broader economy was starting to recover: "We are seeing improving conditions and evidence of stabilization, even growth, across a number of sectors."

Goldman's resurgent profitability has become a flashpoint for members of Congress and others concerned that Wall Street firms are plunging back into the high-risk practices that contributed to the financial crisis. Goldman reported that its "value at risk" in the third quarter, a common measure of risk-taking, increased by 27 percent over the same period last year.

The criticism has forced a change in tone at Goldman. Its executives increasingly have tried to underscore that the company's financial success is good for the broader economy.

On a conference call with financial analysts Wednesday , the company's chief financial officer, David A. Viniar, said Goldman's outsized profitin recent quarters reflected the fact that it kept doing business during the worst of the crisis.

"We made prices where markets were volatile and illiquid, and made loans where credit was scarce," Viniar said. "We took these actions because we knew we had an important role to play in supporting global markets."

The company also is under fire for its pay practices. Goldman awards much of its revenue to its employees. The company said it set aside $5.35 billion for compensation in the third quarter, an increase of 84 percent over the same period last year. Blankfein has strongly defended the company's pay practices, noting that employees are paid for success. But members of Congress and other critics have blasted the bonus plans as excessive, particularly because the company's current success relied on federal aid.

Goldman took $10 billion from the Treasury Department, which it subsequently repaid. It borrowed billions more with the help of the Federal Deposit Insurance Corp. The company also borrowed from the Federal Reserve's emergency lending programs, although both the company and the Fed have declined to disclose the amount of aid provided.

In addition, the company has benefited from the absence of some former rivals -- including Lehman Brothers, Bear Stearns and Merrill Lynch -- and the weakness of others, such as Citigroup.

"Our market shares have improved, and I think we're getting a bigger share of a smaller pie right now," Viniar said.

In a modest nod to its critics, the company underscored Thursday that it is slightly reducing the share of revenueit devotes to compensation. Through the first nine months of 2009, Goldman said, it spent 47 percent of revenue on pay, compared with 48 percent last year.

Roger Freeman, an analyst at Barclays Financial, wrote in a note to clients that Goldman's decision to reduce the amount set aside for compensation also had the effect of increasing its reported earnings, allowing the company to exceed the estimates of analysts.

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