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Goldman Profits Exceed Expectations

Lagging revenues offset by reduced expenses key the results


Despite a 16% overall decline in revenue, Goldman Sachs (NYSE:GS) today announced they more than doubled first quarter 2012 profits, and announced a quarterly dividend increase to 46 cents per share from 35 cents per share.

Goldman’s net income available to common stock shareholders came in at $2.1 billion, or $3.92 cents per share, an increase from last year’s $908 million, or $1.56 per share. Analysts had predicted earnings per share earnings of $3.52 according to AP.

While revenues were up in both the institutional and client services, and investing and lending businesses, total revenue fell to $9.9 billion from $11.9 billion. Indeed, revenues were down in all segments compared to results from last year’s first quarter.

Goldman made up for the lagging revenues in across the board expense cuts, including:

  1.  a layoff of 3,000 employees (8% of the total workforce),
  2. a reduction in average compensation per employee to $135,000 from $148,000,
  3. cutbacks on brokerage fees, salaries, and occupancy costs.

The improved profits, combined with the dividend increase, are good news in a storm of controversy and difficult times.

Last year Goldman reported a first quarter loss, only the second quarterly loss since the company went public in 1999. Between 2010 and 2011 net income fell in six of the eight quarters. Perhaps more alarmingly, return on equity has fallen from 38% five years ago to 12 percent today.

And of course, the company has become a virtual straw-man for Wall Streets’ public relations problems. Last month’s editorial in the New York Times by ex-Executive Director Greg Smith accused those in the firm of losing their “moral fiber” and having a cavalier, if not callous, disregard for clients.

With financial reforms on the way, client activity waning, and the company and industry under the microscope, the revenue and profit picture at Goldman will continue to be a story in and of  itself.

Article printed from InvestorPlace Media,

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