CHICAGO, Jan. 20, 2011 /PRNewswire/ -- Zacks.com Analyst
Blog features: The Goldman Sachs Group Inc. (NYSE: GS),
Citigroup Inc. (NYSE: C), JPMorgan Chase & Co.
(NYSE: JPM), Morgan Stanley (NYSE: MS) and State Street
Corporation (NYSE: STT).
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Here are highlights from Wednesday's Analyst Blog:
Goldman Beats on Lower Revs
The Goldman Sachs Group Inc.'s (NYSE: GS) fourth quarter
2010 earnings per share of $3.79
outpaced the Zacks Consensus Estimate of $3.73. In spite of challenging economic
conditions, the company stood to gain from a solid balance sheet
and global clients. Goldman's results were nevertheless affected by
poor performance in Investment Banking and significantly higher
operating expenses.
Net income in the quarter was $2.4
billion, compared with $1.9
billion in the prior quarter and $4.9
billion in the prior-year quarter.
For full year 2010, the company reported earnings per share of
$13.18, slightly ahead of the Zacks
Consensus Estimate of $13.13.
Excluding the impact of $465 million
related to the U.K. bank payroll tax, $550
million related to the SEC settlement and $305 million related to the impairment of the
company's New York Stock Exchange (NYSE) Designated Market Maker
(DMM) rights, earnings per common share were $15.22. Net income was $8.4 billion, compared with $13.4 billion in the prior year.
Behind the Headlines
Total revenue of Goldman decreased 3% from the prior quarter and
10% year over year to $8.6 billion.
Revenue reported was below the Zacks Consensus Estimate of
$9.2 billion, primarily due to lower
equity trading. For full year 2010, the company reported revenue of
$39.2 billion, down 13% year over
year and also below the Zacks Consensus Estimate of $39.9 billion.
Quarterly revenue, as per business segments, is as follows:
Investment Banking division generated revenues of
$1.51 billion, down 10% year over
year. Results reflected lower-than-expected revenues from the
financial advisory business as a fallout of a decline in client
activity. These declines were further exacerbated by lower revenues
from both equity and debt underwriting due to lower levels of
activity.
Institutional Client Services division recorded
revenues of $3.64 billion, down by a
significant 31% year over year. Results deteriorated due to a
decrease in revenues in equity trading (down 5% year over year) and
a decline in Fixed Income, Currency and Commodities (FICC),
signifying a challenging environment during the reported quarter
and lukewarm client activity.
Investing and Lending division booked revenues of
$1.99 billion, up by a substantial
45% year over year. Results principally reflected a gain of
$55 million from Goldman's investment
in the ordinary shares of Industrial and Commercial Bank of China
Limited (ICBC), a net gain of $1.07
billion from other equity securities and a net gain of
$537 million from debt securities and
loans.
Investment Management division generated revenues
of $1.51 billion, up 14% year over
year. The year-over-year increase mainly reflected extensively
higher incentive fees, partially offset by lower transaction
revenues.
In the fourth quarter of 2010, operating expenses doubled from
$2.24 billion in the prior-year
quarter to $5.17 billion. The
considerable rise in expenses was perpetrated by higher
non-compensation expenses. For fiscal year 2010, operating expenses
increased 4% from $25.3 billion in
the prior year to $26.3 billion.
Non-compensation expenses were $3.05
billion in the quarter, up 11% year over year. Expenses
increased largely due to an impairment of Goldman's NYSE DMM rights
of $305 million during the quarter,
as well as higher market development expenses and professional
fees. For fiscal year 2010, non-compensation expenses increased 14%
from $9.15 billion in the prior year
to $10.43 billion.
Evaluation of Capital
As of December 31, 2010, Goldman's
Tier 1 capital ratio under Basel I was 16.0%, up from 15.7% as of
September 30, 2010. Tier 1 common
ratio under Basel I was 13.3%, compared with 13.0% as of
September 30, 2010. As of fiscal year
ended 2010, return on equity, on an annualized basis, was
11.5%.
For fiscal year 2010, Goldman's book value per share improved
10% year over year to $128.72.
Tangible book value per share increased 9% year over year to
$118.63.
Assets under management (AUM) increased 2% sequentially to
$840 billion in the quarter due to
$12 billion of net appreciation and
$5 billion of net inflows.
Share Repurchase and Dividend Update
During fiscal year 2010, Goldman repurchased 25.3 million shares
of its common stock, at an average cost per share of $164.48, for a total cost of $4.16 billion. In the fourth quarter of 2010, the
company repurchased 6.7 million shares at an average cost per share
of $163.41, for a total cost of
$1.09 billion.
Goldman declared a dividend of 35
cents per share payable on March 30,
2011 to common shareholders of record as of March 2, 2011.
Performance by Peers
Comparing performances in Goldman's peer group, Citigroup
Inc. (NYSE: C) reported positive results though lagging the
Zacks Consensus Estimate. The lower-than-expected results were
primarily due to a drop in revenues. Citi reported a decrease in
both interest and non-interest revenues. The revenue figure
included a negative Credit Value Adjustment (CVA) of $1.1 billion that resulted from tightened
spreads. Additionally, there was also an escalation in expenses.
However, the decrease in loan loss provisions, in sync with
expectations, was the bright spot.
Another of the company's peers, JPMorgan Chase & Co.
(NYSE: JPM), however reported fourth quarter earnings substantially
ahead of the Zacks Consensus Estimate. For full year 2010 as well
earnings surpassed the Zacks Consensus Estimate. The
better-than-expected numbers were primarily supported by higher
non-interest revenue and a slowdown in provision for credit losses,
which more than offset a rise in non-interest expense primarily
because of increased litigation reserves.
A strong contender Morgan Stanley (NYSE: MS) will be
releasing fourth quarter earnings on January
20, 2011.
Our Take
Though most of the major banks had to absorb extraordinary
shocks from the recession, Goldman remained consistently profitable
during the economic downturn. This resiliency in its business model
and the strength of its fundamentals will see the company through
the ill effects of the recent financial reform law and in spite of
the continuing pressure on trading revenues.
Fundamentally, we expect the company to benefit from its
well-managed global franchise, strong capital base and leading
position in investment banking, capital markets, trading, and asset
management business. While the new financial regulatory reform will
remain a challenge for Goldman's top line, we believe its measures
to strengthen the business model while complying with such
regulatory changes are encouraging.
We therefore expect Goldman to continue to deliver strong
performance, based on its prudent business model and strong
fundamentals. Goldman currently retains its Zacks #3 Rank, which
translates into a short-term Hold rating. Considering the
fundamentals, we are maintaining our Neutral recommendation on the
stock.
State Street Surpasses Estimates
State Street Corporation's (NYSE: STT) fourth quarter
2010 operating earnings of 87 cents
per share were ahead of the Zacks Consensus Estimate of
85 cents. The results also compare
favorably with the prior quarter earnings of 86 cents and the prior-year quarter earnings of
71 cents.
For the fiscal year 2010, operating earnings of $3.40 per share were ahead of the Zacks Consensus
Estimate of $3.39 and the prior year
earnings of $3.32.
Operating results, however, exclude certain discount accretion
related to former conduit assets, losses related to a restructuring
of the investment portfolio, restructuring charges related to a
business operations and information technology enhancements
program, merger and integration costs and a tax on bonus payments
to employees in the United
Kingdom.
On a GAAP basis, earnings for the quarter came in at
16 cents per share, compared with
earnings of $1.08 in the prior
quarter and $1.00 in the year-ago
quarter. For the full year, earnings on a GAAP basis stood at
$3.09 per share, compared with
earnings of $3.46 per share in the
prior year.
The improvement in results was aided primarily by increased
operating revenues, which were offset partly by higher expenses.
The company's capital ratios also showed improvement. Also, with
the acquisition of Intesa and Mourant in the second quarter State
Street's core asset servicing business strengthened further, thus
supporting the top line.
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