Mark Smith – The Herald July 14, 2009
Goldman Sachs yesterday slaughtered analyst forecasts by unveiling $3.44bn (£2.1bn) second-quarter net profits in an extraordinary rebound from the near-meltdown of the global banking industry.
The US bank, which was humbled along with the rest of the sector last year when the financial markets froze, yesterday also blew the lid off employee pay.
Goldman Sachs New York head office
Goldman set aside $6.7bn for salary, bonuses and bene-fits in the quarter, up by nearly half from the quarter ended in May last year - putting the average Goldman employee on track to earn more than $900,000 this year.
Just nine months after the US Treasury bailed out the country's biggest banks with $125bn of taxpayer money, Wall Street's largest surviving investment bank produced record revenues of £13.8bn, thanks to savvy trading in improving markets.
The bank, which last month gave its bailout money back to the American government, saw its biggest gains in trading and stock underwriting.
David Viniar, Goldman's chief financial officer, said: "There's less competition out there."
The financial crisis wreaked havoc on Wall Street last year, collapsing Bear Stearns, sending Lehman Brothers into bankruptcy, and forcing Merrill Lynch into a shotgun wedding with Bank of America.
Goldman's results yesterday come just one month after the bank paid back its $10bn in aid in a move to ensure its independence from US government interference.
The government investment had also included restrictions, such as caps on executive compensation.
Amid last year's crisis Goldman was forced to convert from an investment bank to a more regulated commercial bank structure In spite of the robust second quarter, Goldman's profit would have been better had it not been for a charge taken to repay the government investment.
Its results were tempered by a one-time $426m charge related to Goldman's repayment of the $10bn government bailout.
Viniar told reporters there was "no timeline" for the bank to buy back stock warrants issued to the government under the Troubled Asset Relief Programme.
The New York-based banking giant's profit was boosted by record quarterly revenue of $6.8bn in its fixed income, currency and commodities unit, where mortgage and other credit instruments are traded, the bank said in a statement.
This business has performed well since the bank has taken on increased levels of risk since the end of last year.
Equities trading revenue totalled $3.bn during the quarter in part because of stronger trading in derivatives.
It said it generated $811m in revenue from principal investments.
Meanwhile, the bank's equity underwriting business also generated record net revenue, worth $736m in the second quarter. Goldman benefited among other things from a surge in demand from other troubled banks to issue shares and raise their capital levels.
Keith Davis, an analyst at US investment manager Farr, Miller & Washington, said: "They look like a blowout to me, but I don't think it should be a big surprise to anyone.
"The environment is very conducive to the type of things they do.
"Spreads are very wide, fixed-income and equity issuances have been pretty strong.”
Last updated 19/07/2009