Q4 Earnings: Goldman Beats Street; Net Income Falls

GS saw lower investment banking fees in a quarter marked by choppy financial markets

Headquarters of Goldman Sachs in New York, which saw its Q4 2011 income fall 58%. (Photo: AP) Headquarters of Goldman Sachs in New York, which saw its Q4 2011 income fall 58%. (Photo: AP)

NEW YORK (AP) — Goldman Sachs' (GS) net income fell more than 50% in the last three months of last year because of lower investment banking fees in a quarter marked by choppy financial markets.

The investment bank said Wednesday that it made $927 million, or $1.78 per diluted share, from October through December. The results beat the estimate of $1.28 per share from analysts surveyed by FactSet, a provider of financial data.

Goldman's quarterly revenue fell 30% to $6 billion. It set aside $2.2 billion for pay, 2% less than the year before.

Fear about the European debt crisis made the stock and bond markets volatile late last year, and clients of all the major banks shied away from mergers and acquisitions and public offerings of stock.

Goldman took in 43% less in the fourth quarter than it did in the same quarter a year earlier from advising companies on mergers and acquisitions and underwriting fees for stock and bond sales.

Goldman has a reputation for outperforming the rest of Wall Street. But its fee decline was roughly in line with Citigroup, its much weaker competitor, where fees declined 45%. JPMorgan Chase reported a smaller decline of 39%.

Goldman Sachs CEO Lloyd BlankfeinCEO Lloyd Blankfein (right) said concerns about the global economy made Goldman's clients less inclined to take risks in 2011. He said the firm saw "encouraging signs" that the economy and financial markets are improving.

Goldman's typical clients are large hedge funds and multinational corporations that need to hedge their bets on foreign currencies, fluctuating interest rates and commodities.

The bumpy financial markets hurt revenue in those parts of Goldman's business. Revenue from client services fell 16% to $3.06 billion for the quarter. Transactions in commodities, currency and fixed income fell 17%.

Besides conducting large trades for those clients, Goldman has made big profits trading for its own account — especially when the markets are volatile. But regulations taking effect this year will reduce Goldman's ability to make those trades for the firm.

Another worry is that the near future isn't looking as healthy. The firm's investment banking transaction backlog, an indicator of future revenue and profit, decreased from the quarter before, though it was slightly higher than a year earlier.

For the year, Goldman made $4.4 billion, 47% less than in 2010, on revenue of $28.8 billion, down 26% from the previous year.

Goldman's stock was up 1% at $98.74 in pre-market trading.

Read about Goldman Sachs' prior-quarter Q3 2011 earnings at AdvisorOne.

See AdvisorOne's Q4 earnings calendar for the financial sector.

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