Goldman Sachs third-quarter profit rises 46pc

Goldman Sachs third-quarter profit rises 46pc
Goldman Sachs’ commitment to fixed-income trading through a seven-year slump paid off in the third quarter, as revenue from the business surged 49 per cent to propel the firm past analysts’ earnings estimates.The rebound in bond trading added to the second quarter’s 33 per cent advance, giving chief executive Lloyd Blankfein more time to prove the merits of his strategy after some competitors pulled back. The gains helped fuel a 47 per cent increase in earnings for the three months ended September 30, New York-based Goldman Sachs said on Tuesday in a statement. Net income rose to $US2.09 billion, or $US4.88 a share, from $US1.43 billion, or $US2.90, a year earlier. That surpassed the $US3.88 average estimate of 20 analysts surveyed by Bloomberg. Photo: Daniel Acker Blankfein, 62, has been cutting jobs, giving more responsibility to junior employees and lowering compensation to prepare for when activity rebounds from the downturn, which saw industrywide revenue from fixed income fall by half last year compared with 2009. First-quarter revenue was the lowest for the start of a year in Blankfein’s decade-long tenure as CEO.”You started in such a deep hole and that impaired sentiment dramatically and created a lot of questions around viability of the business,” said Devin Ryan, an analyst at JMP Securities. “You get a couple good quarters and that pendulum around sentiment swings back to the middle. People say, ‘Maybe I shouldn’t be so dire about the outlook.”‘Chief financial officer Harvey Schwartz tempered some of the optimism in his remarks on a conference call. The results owed more to a favourable comparison to last year’s third quarter and the absence of challenges rather than any positive factors that might bode well for the future, Schwartz said. Still, the firm feels good about the way it’s positioned when growth picks up, he said.Goldman Sachs’s stock gained as much as 2.6 per cent before giving back some of the advance. It rose 1.7 per cent to $US171.94 at 11.17am in New York. The shares dropped 6.2 per cent this year through Monday, trailing the 3.8 per cent advance for the Dow Jones Industrial Average.

The bank is trying to show investors it can generate a return on equity above its cost of capital after years of returns often in excess of 20 per cent were the envy of the industry. ROE in the third quarter was 11.2 per cent annualised.Fixed-income trading revenue climbed to $US1.96 billion  excluding year-earlier accounting adjustments, beating the $US1.7 billion average estimate of five analysts. Equities-trading revenue of $US1.78 billion surpassed the $US1.69 billion estimate. The sales-and-trading division is overseen by Isabelle Ealet, Pablo Salame and Ashok Varadhan.Net income rose to $US2.09 billion, or $US4.88 a share, from $US1.43 billion, or $US2.90, a year earlier, according to the statement. That surpassed the $US3.88 average estimate in a survey of 20 analysts.Revenue exceeds expectations Net revenue in the quarter rose 19 per cent to $US8.17 billion. That compares with the $US7.41 billion estimate of analysts. Expenses rose 10 per cent to $US5.3 billion, higher than the $US4.9 billion estimate, as compensation and benefits jumped 36 per cent from a year earlier. Through the first nine months, the company set aside 41 per cent of revenue to pay its employees, up from 40 per cent in the same period last year.Revenue from investment banking – run by Richard Gnodde, David Solomon and John Waldron – declined 1.2 per cent to $US1.54 billion, beating the $US1.47 billion estimate.Debt-underwriting revenue increased 17 per cent …

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