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Goldman Sachs' Net Falls 11% but Still Beats Forecasts

Tuesday, 17 July 2012 08:04 AM

Goldman Sachs says its net income fell 11 percent in the April-to-June period after the investment bank's clients made fewer deals and avoided volatility in global financial markets.

The New York bank said its net income fell to $962 million, or $1.78 per share, for the quarter. That compares with $1.09 billion, or $1.85 per share, a year ago. It's also far more than the $1.17 per share that analysts were expecting.

"During the second quarter, market conditions deteriorated and activity levels for both corporate and investing clients were lower given continued instability in Europe and concerns about global growth," Goldman's CEO, Lloyd Blankfein, said in a statement.

Revenue for the three months ended June 30 declined 9 percent to $6.63 billion. That was more than Wall Street's forecast of $6.2 billion.

Goldman Sachs' stock climbed $2.50 to $100.18 in premarket trading.

Goldman is also keeping its compensation costs in line. The bank has been targeted by protesters and Congress for outsized pay in years past. Goldman's compensation costs fell 9 percent in the quarter to $2.9 billion, in line with the drop in revenue.

Global financial markets reeled in the second quarter after the outcome of elections in Greece seemed to push the country closer to defaulting on its debt and as Spain's banks teetered on the brink of collapse — the latest threats to Europe's currency union.

The shakiness in financial markets hurt Goldman's core investment banking business. Goldman is a major adviser to large companies on making merger and acquisition deals and on underwriting stock and bond offerings. Many companies shied away from doing both in the second quarter as they waited for calmer markets.

Revenue in Goldman's investment banking division fell 17 percent to $1.2 billion; mergers and acquisitions fell 26 percent and underwriting revenue fell 9 percent.

Goldman Sachs also helps execute large stock and bond trades for money managers like pensions, mutual funds and hedge funds. Revenue for that business increased 11 percent from the same period last year, but dropped 32 percent from the first three months of the year.

With interest rates at historic lows, more people are buying homes or refinancing existing mortgages. These loans are usually securitized and sold on Wall Street. That activity led to a 37 percent increase in revenue from trading securities related to mortgages and commodities, the bank said.

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Tuesday, 17 July 2012 08:04 AM
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