Tuesday, July 19, 2011

Goldman Sachs Reports Lackluster Q2 Earnings (Financial Charts) *Overall poor performance, yet EPS increases* GS

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Goldman Sachs reported Q2 2011 financial results on Tuesday, July 19, 2011
Charts and commentary have been updated for Goldman Sachs Q2 June 2011 financial results *

Goldman Sachs Reports Lackluster Q2 Earnings: Overall poor financial performance, yet EPS increases

Goldman Sachs Summary Q2 2011 Goldman Sachs Q2 2011 financial results were poor as a result of plunging Net Revenues, which was specifically a sharp drop in trading revenues. Regardless, earnings per share actually increased due to a large decrease in preferred shares and the related dividend and ongoing repurchase of common shares. Financial position continues adequate. Significant uncertainty about Goldman Sachs future financial performance has been created by these latest financial results.

Goldman Sachs Income Statement Q2 2011 Goldman Sachs reported net revenues of $7.28B, net income of $1.09B, and earnings per share of $1.85. From the prior quarter Q1 2011, net revenues were down -39%, net income down -60%, and earnings per share up +60%. Goldman Sachs was able to increase earnings per share regardless of poor financial performance by a significant decrease in outstanding preferred shares and the related dividend and an ongoing repurchase of common shares. From the prior year Q2 2010, a worse performing quarter than the current quarter, these were down -18%, +77%, and +126%, respectively. The operating and net margins decreased to 22.14% and 14.93%, respectively, which are historically poor performance for Goldman Sachs.

Goldman Sachs Balance Sheet Q2 2011 Total assets increased QoQ +0.4% to $937B. The capital to assets ratio (total stockholders' equity divided by total assets) is an adequate 7.73%. Tier 1 capital increased slightly to 14.70 % and Tier 1 common increased slightly to 12.9%. Both continue adequate.

Goldman Sachs Financial Performance by the Quarters (Charts)

Goldman Sachs Earnings per Share (Chart) Below is a chart of quarterly earnings per diluted share. After the plunge to -$4.97 in November 2008 during the USA Financial System Crisis, Goldman Sachs rebounded to a peak of +$8.20 in December 2009, but has generally downtrended since. Earnings per share have been positive since the November 2008 plunge, for 10 consecutive quarters, but have been volatile and erratic. The current Earnings per Share of $1.85 is both a QoQ and YoY decrease for the 2nd consecutive quarter.

Goldman Sachs Net Revenues, Operating Income, Net Income (Chart) Below is a chart of quarterly net revenues, operating income, and net income. Consolidated revenues are reported net of interest expense. Current Net Revenues of $7.28B are a multi-year low and have historically been volatile. Current Operating Income of $1.61B is a 4-quarter low and has not rebounded to Pre-Financial Crisis levels earlier in 2008. Current Net Income of $1.09B is a 4-quarter low.

Goldman Sachs Operating Margin and Net Margin (Chart) Below is a chart of quarterly operating margin and net margin. Both margins have been volatile because of the fluctuations in net revenues, operating income, and net income. The prior quarterly margins of 16.38% and 6.93% in June 2010 were the lowest since the loss incurred in November 2008. Current Operating Margin of 22.14% is a 4-quarter low. Current Net Margin of 14.93% is also a 4-quarter low.

Goldman Sachs Return on Assets (Chart) Below is a chart of annual return on average assets per quarter. The total net income for the most recent 4 quarters is divided into average assets for the most recent 4 quarters to obtain a rolling annualized ROA, an annualized return on average assets for the 12 months (4 quarters) ended. Current Return on Assets of 0.89% is the first increase after 4 consecutive quarterly decreases. ROA increased because the lower performing Q2 2010 net income of $613M dropped out of the calculation leaving the 4 more profitable recent quarters.

Goldman Sachs Income Statement Components (Chart) Below is a chart of the major income statement components: NonInterest Revenue, Net Interest Income, NonInterest Expense, and Net Income. Current NonInterest Revenue plunged to $5.87B as a result of a decrease in Market Making and Other Principal Transactions and is the lowest since the dismal QE November 2008. NonInterest Revenue has historically been incredibly volatile with large swings upwards or downwards which have ultimately affected Net Income either positively or negatively. NonInterest Revenue is not recovering sufficiently nor been stable and and therefore has become a drag on Net Revenues and ultimately Net Income. Current Net Interest Income of $1.41B rebounded to a 4-quarter high, but not enough to significantly improve Net Income. Current NonInterest Expense, operating expenses, of $5.67B dropped to a 2-quarter low as a result of a $2B decrease in Compensation and Benefits. Current Net Income is reviewed on previous charts above.

Goldman Sachs Growth Rates (Chart) Below is a chart of the quarterly (QoQ, Q/Q, quarterly change) growth rates for net revenues and earnings per share. Net revenues and earnings per share have been volatile and erratic. The initial plunge in November 2008 for net revenues and earnings per share was -126% and -375%. This was followed by a continuing plunge in March 2009 for net revenues and earnings per share of -697% and -168%. Goldman Sachs has bounced back from the 2008 Financial Crisis, but improvement was subdued in the latter part of 2010 and has not been consistent overall.

Goldman Sachs Operating Expense Ratio (Chart) Below is a chart of the operating expense ratio (NonInterest Expense divided by Total Revenues, which are NonInterest Income plus Interest Income). The Current Operating Expense Ratio of 59.37% continues an upward trend to high levels. This is a negative development. NonInterest Expense, operating expenses, appear to be contained, but plunging NonInterest Revenue has disproportionately increased the ratio. An unreasonable share of each dollar of revenues is being spent on operating expenses. Though still a high ratio historically, the ratio peaked in June 2010 at an astronomical 70.25%. Ultimately a continuation of this uptrend will decrease profitability and already has.

* Change in Accounting Periods The Goldman Sachs Group, Inc. (GS) changed from a fiscal year to a calendar year at the end of 2008 when the conversion to a bank holding company occurred. As a result, a fiscal quarter 3ME 11-30-08 was reported and the next quarter reported subsequently was the 3ME 3-31-09. The 1ME 12-26-08 was reported separately, as an "orphan month", and not included in a quarterly financial results.

Goldman Sachs Reports Second Quarter Earnings per Common Share of $1.85

NEW YORK, July 19, 2011 - The Goldman Sachs Group, Inc. (NYSE: GS) today reported net revenues of $7.28 billion and net earnings of $1.09 billion for the second quarter ended June 30, 2011. Diluted earnings per common share were $1.85 compared with $0.78 for the second quarter of 2010 and $1.56 for the first quarter of 2011. Annualized return on average common shareholders’ equity (ROE) was 6.1% for the second quarter of 2011 and 8.0% for the first half of 2011. Excluding the preferred dividend of $1.64 billion related to the redemption of the firm’s Series G Preferred Stock in the first quarter of 2011, annualized ROE was 10.2% for the first half of 2011.

* Goldman Sachs ranked first in worldwide announced mergers and acquisitions for the year-todate.
* The firm continued its leadership in equity underwriting, ranking first in worldwide equity and equity-related offerings, common stock offerings and initial public offerings for the year-to-date.
* During the quarter, the firm repurchased 10.8 million shares of its common stock for a total cost of $1.50 billion. Including the impact of these repurchases, book value per common share and tangible book value per common share each increased 1.6% during the quarter to $131.44 and $121.60, respectively.
* The firm continues to manage its capital conservatively. The firm’s Tier 1 capital ratio under Basel 1 was 14.7% and the firm’s Tier 1 common ratio under Basel 1 was 12.9% as of June 30, 2011.

“During the second quarter, the operating environment was more difficult given global macroeconomic concerns,” said Lloyd C. Blankfein, Chairman and Chief Executive Officer. “In addition, certain of our businesses had disappointing results as we reduced our market risk in response to attempting to manage fluctuations in prices and market liquidity. Despite these challenges, we continued to address our clients’ needs through our strong global franchise and are well positioned to respond as economic conditions and sentiment improve.”

About Goldman Sachs

The Goldman Sachs Group, Inc. is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in all major financial centers around the world.

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