January 19, 2011

2010 Q4 Earnings: Goldman Sachs Profits Plummet 53%

Financial Advisory and Investment Management revenues were both higher in the full year

Goldman Sachs (GS) on Wednesday in its fourth-quarter earnings report met analysts’ expectations but disappointed them just the same because the Wall Street giant’s earnings dropped a whopping 53% from their record high in 2009.

Analysts’ consensus was for earnings per share of $3.80, while the company reported EPS at $3.79 compared with $8.20 for the Q4 2009 and $2.89 for Q3 2010.

The lower profits were largely due to a drop in trading and investment banking revenues. Fixed-income, currencies and commodities revenue fell 37% from a year ago, while equities trading was down 5% and investment banking was down 10%, according to Goldman’s news release.

However, within the Investment Banking unit, revenues in Financial Advisory were 9% higher than in 2009, rising to $2.06 billion for the full year of 2010, primarily reflecting an increase in client activity. For the quarter, revenues in Financial Advisory were $628 million, 7% lower than the fourth quarter of 2009.

In the Investment Management unit, revenues also were 9% higher than in 2009, at $5.01 billion for 2010, “primarily reflecting higher incentive fees across the firm’s alternative investment products,” the Goldman release reported. “Management and other fees also increased, reflecting favorable changes in the mix of assets under management, as well as the impact of appreciation in the value of client assets.”

During the year, assets under management (AUM) decreased 4% to $840 billion, primarily reflecting industry-wide outflows in money market assets. For the quarter, Investment Management revenue was 14% higher than a year ago at $1.51 billion, reflecting “significantly” higher incentive fees. Quarterly AUM rose 2% to $840 billion due to appreciation in client asset values and money market inflows.

Overall net revenues for the full year totaled $39.16 billion and net earnings totaled $8.35 billion, with EPS at $13.18 for all of 2010 versus $22.13 in 2009.

EPS would have been $15.22 in 2010, but Goldman was hit with three charges last year totaling more than $1 billion that tarnished the firm’s reputation. They include $465 million for a U.K. bank payroll tax, $550 million for a settlement with the Securities and Exchange Commission and a $305 million impairment of the firm’s market maker rights with the New York Stock Exchange.

“Market and economic conditions for much of 2010 were difficult, but the firm’s performance benefited from the strength of our global client franchise and the focus and commitment of our people,” said Chairman and Chief Executive Officer Lloyd Blankfein in a statement.

In the closely watched area of compensation and benefits, Goldman Sachs employees saw a 5% decline in combined salaries, discretionary compensation and equity awards. Pay stood at $15.38 billion for 2010 versus $16.19 billion a year ago.

Read about Goldman Sachs’ Q3 2010 earnings at AdvisorOne.com.

Read AdvisorOne's 2010 Q4 earnings calendar for the financial sector for release dates and links to earnings stories.

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