2011 Q1 Earnings: Goldman Profits Fall 21% as Bank Pays Warren Buffett Back

EPS of $1.56 nearly double $0.81 estimates; without Berkshire Hathaway payback, EPS at $4.38

Goldman Sachs (GS) reported Tuesday first-quarter 2011 profits of $2.74 billion, down 21% from the same time a year ago, after it bought back Warren Buffett’s preferred stock in the investment bank and bought back $1.47 billion of its own shares.

Net revenues totaled $11.89 billion as of March 31 compared with $12.78 billion in a year ago and $8.64 billion last quarter. Earnings per share of $1.56 were well below the $5.59 EPS earned in Q1 2010 and $3.79 in Q4 2010, but nearly double the $0.81 of earnings that analysts had expected.

Warren BuffettHowever, Goldman’s EPS would have totaled $4.38 if the bank hadn’t paid off its $1.64 billion redemption of preferred stock. Buffett’s Berkshire Hathaway bailed out Goldman to the tune of $5 billion during the worst of the financial crisis in 2008, and this quarter’s one-time hit reflects part of the cost of the loan. In addition, Goldman last month said it would pay back $5.64 billion to Berkshire Hathaway.

Goldman’s Q1 2011 earnings statement shows that the bank has left the worst of the financial crisis behind and is positioning itself to get back in the business of making money without having to deal with any overhanging debt. Overall, the bank’s results were mixed for the quarter.

“WeLloyd Blankfein, CEO of Goldman Sachs are pleased with our first-quarter results,” said Chairman and CEO Lloyd Blankfein (left) in a statement. “Generally improving market and economic conditions, coupled with our strong client franchise, produced solid results. Looking ahead, we continue to see encouraging indications for economic activity globally.”

Net revenues in Investment Banking were $1.27 billion, 5% higher than the first quarter of 2010 but 16% lower than the fourth quarter of 2010. Within the Investment Banking unit, net revenues in financial advisory were especially weak, posting at $357 million, 23% lower than a year ago and 43% lower than the prior quarter.

However, commissions and fees totaled $1.02 billion versus $880 million a year ago and $904 million last quarter. Net revenues in the firm’s underwriting business were 23% higher, at $912 million, than in Q1 2010, due to strong net revenues in debt underwriting, which were significantly higher compared with the first quarter of 2010, as well as higher net revenues in equity underwriting. The increase in both debt and equity underwriting primarily reflected an increase in client activity, according to the bank.

Net revenues in investment management were $1.27 billion, 16% higher than in Q1 2010 and 16% lower than in Q4 2010. The increase in net revenues compared against a year ago was primarily due to an increase in management and other fees, reflecting favorable changes in the mix of assets under management, as well as higher incentive fees.

Goldman’s assets under management (AUM), which stood at $840 billion as of March 31, 2011, are unchanged from last quarter and last year. Institutional client services, Goldman’s largest unit, reported a 22% decline in revenues to $6.65 billion.

For more information on earnings in the finance sector read AdvisorOne’s 2011 Q1 Earnings Calendar.

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