Earnings Preview: Goldman Sachs (NYSE: GS) Third Quarter 2010
Friday, September 24, 2010 11:47 AM

Goldman Sachs is scheduled to release third quarter earnings before the opening bell on Tuesday, October 19, 2010. Analysts, on average, expect the company to report earnings of $3.19 per share on revenue of $9.42 billion. In the year-ago quarter, the company reported earnings of $5.25 per share on revenue of $12.37 billion.

The Goldman Sachs Group, Inc., together with its subsidiaries, provides various investment banking, securities, and investment management services to corporations, financial institutions, governments, and high-net-worth individuals worldwide. Goldman Sachs operates through three main segments: Investment Banking, Trading and Principal Investments and Asset Management and Securities Services.

In the preceding second quarter, the New York-based company's net income was $453 million or 78 cents per share, down 82% from $2.718 billion, or $4.93 per share, in the year-ago quarter. On an adjusted basis, the company earned $2.75 per share in the second quarter.  Results for the current-year quarter included the impact of $600 million related to the U.K. bank payroll tax and $550 million related to settlement of civil fraud suit, initiated by the Securities and Exchange Commission. Revenue dropped 36% to $8.841 billion from $13.761 billion. The biggest component, revenue from trading fixed- income, currencies and commodities, dropped to $4.4 billion from $7.39 billion in the first quarter and $6.8 billion a year ago. Analysts, on average, expected the company to report earnings of $2.04 per share on revenue of $8.99 billion.

The company's trading results are closely watched by the investors. According to industry experts, third quarter results are likely to reflect lower trading revenue due to seasonal slowdown and weak capital market trends.

The financial services giant is reportedly planning to close its principal-strategies unit, which does proprietary trading, to comply with new regulations aimed at curbing risk. Dodd-Frank financial-overhaul act prohibits banks from activities like proprietary trading and investing more than 3% of their capital in private equity or hedge fund investments. The unit contributes about 10 % of Goldman Sachs' annual revenue. Looking ahead, the new regulations are likely to continue to pressure trading revenues and profitability of Goldman Sachs for some quarters to come.

Goldman Sachs' public image has taken a serious hit in recent times amid a wave of withering criticism of its business practices. Early in September, UK's financial regulator announced that it fined Goldman Sachs 17.5 million pounds ($27 million) for failing to disclose a fraud probe by Securities & Exchange Commission  that encompassed the firm's British operations. In July, Goldman Sachs agreed in to pay $550 million to settle the SEC's claims, without admitting or denying wrongdoing.

In terms of stock performance, Goldman Sachs shares have lost nearly 12 percent since the beginning of the year.
Disclosure: Author doesn't own any of the stocks discussed here.



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