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Posts Tagged ‘Goldman Sachs’ earnings’

Company News: The Good, the Bad, and the Ugly

Posted by Larry Doyle on April 16th, 2009 8:04 AM |

We have had a stream of earnings results from banks this week. The earnings from Wells Fargo, Goldman Sachs, and JP Morgan have all surprised to the upside. Interestingly, though, the degree of transparency and “quality” of earnings has been decidedly different with each of these institutions.

JP Morgan just released earnings this morning. Earnings per share came in at .40 versus an expectation of .32. The quick snapsot of the numbers reveals broad based positive results across retail banking, equity trading, and fixed income trading. JPM significantly increased loan loss reserves and CEO Jamie Dimon cautioned that the bank may have to further increase reserves given the challenging economic environment. The bank also took significant markdowns in private equity investments.

The lifeblood for any bank is the deposit base, the ultimate source of relative cheap funds. JPM’s deposit base has grown 62% year over year with the acquisition of Washington Mutual.

Dimon and JPM distinguish themselves as the true leader in U.S. banking.

Goldman’s earnings gamed the calendar as they did not make an apples to apples comaprison versus a year ago. What does that mean? Goldman changed its reporting calendar from a December-November reporting period to January-December reporting. In doing so, Goldman did not fully highlight the disastrous numbers in December 2008. While Goldman’s franchise and risk management are superb, the headline report was not totally forthcoming.

Let’s revisit the Wells Fargo report. Many analysts initially questioned the lack of transparency and overall quality of earnings reported by Wells. Jonathan Weil of Bloomberg again stands out by the depth of his analysis. He reports Wells Fargo Profit Looks Too Good To Be True. Weil highlights 4 gimmicks: (more…)

Good News and Bad News: The Plot Thickens

Posted by Larry Doyle on April 13th, 2009 6:39 PM |

It seems as if Wall Street banks are releasing “surprisingly positive” earnings in stealth fashion these days. Goldman Sachs was expected to release 1st quarter 2009 earnings tomorrow. Well, Goldman just released that they “blew the doors off” the building in a very explosive and positive fashion. Bloomberg reports Goldman Sachs to Sell $5 Billion in Stock, Repay TARP:

The New York-based bank earned $1.81 billion, or $3.39 a share, in the first quarter as a surge in trading revenue outweighed asset writedowns. The results beat the $1.64 a share estimate of 16 analysts surveyed by Bloomberg.

The earnings were driven by a sizable increase in trading activity which reads as a major gain in market share. With Bear, Lehman, and Merrill all gone and Citi and BofA in the hospital, the crowd at Goldman is sowing while the sun shines. What does that mean? For those who want or need to “play,” Goldman is now one of the few shops truly open for biz. The price to “get in the game” just went up and Goldman’s franchise is clearly benefiting:

Goldman Sachs benefited as the gap between what banks pay to buy fixed-income securities and the price at which they sell, the so-called bid-ask spread, almost doubled to 19 basis points in six months, according to data compiled by Bloomberg.

Over and above the earnings, Goldman has sent a clear signal to Uncle Sam requesting him to leave the Goldman “casino.” With Goldman’s earnings power clearly defined, the firm has announced its intention to raise more equity capital and pay back the TARP money it received last Fall. It will make that equity raise after the release of the Bank Stress Tests at the end of the month. Uncle Sam’s intentions to oversee compensation, business practices, and the like is the antithesis of how Goldman operates. While the actual cost of the government TARP money is cheap, the unknown costs are enormous. Goldman has no interest in maintaining those risks.    (more…)

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