The Goldman Sachs Group Inc.
) reported its fourth-quarter 2012 earnings per share of $5.60,
significantly surpassing the Zacks Consensus Estimate of $3.47.
Moreover, the reported earnings outpaced the prior-year quarter's
earnings of $1.84 and prior-quarter's earnings of $2.85 per
Amid challenging global markets and the European debt crisis, the
results were driven by Goldman's record revenues with an
elevation in client activity. Yet, escalated operating expenses
acted as a headwind for the quarter.
Net income applicable to common shareholders in the quarter was
$2.8 billion, up from $1.5 billion in the prior quarter and $978
million recorded in the prior-year quarter.
For the full year 2012, net income per share of $14.13 more than
tripled from the prior-year's earnings of $4.51. Earnings were
also above the Zacks Consensus Estimate of $12.04 per share.
Performance in Detail
Total revenue of Goldman surged 11% sequentially and 53% year
over year to $9.2 billion in the quarter under review, resulting
from an increase in overall businesses. Moreover, revenues were
positively impacted by tighter credit spreads and a rise in
global equity prices. Revenue also comfortably surpassed the
Zacks Consensus Estimate of $7.8 billion.
For full year 2012, the company reported revenue of $34.2
billion, up 19% year over year and also surpassed the Zacks
Consensus Estimate of $32.8 billion.
Quarterly revenue, as per business segments, is as follows:
division generated revenues of $1.4 billion, up 64% year over
year. Results reflected higher-than-expected revenues from
underwriting business coupled with elevated revenues from the
financial advisory business. Moreover, higher revenues in equity
and debt underwriting reflected an augmentation in client
Institutional Client Services
division recorded revenues of $4.3 billion, jumping 42% year over
year. Results improved due to outstanding performance in Fixed
Income, Currency and Commodities (FICC), marked by increased net
revenues in credit products and mortgages and higher net revenues
Moreover, rise in equity trading revenues (up 36% year over year)
due to higher net revenues in securities services and equities
client execution were partially offset by lower commissions and
Investing and Lending
division booked revenues of $2.0 billion in the quarter, which
more than doubled from $872 million in the prior-year quarter.
Results principally reflected a gain of $334 million from
Goldman's investment in the ordinary shares of Industrial and
Commercial Bank of China Limited (ICBC), coupled with net gains
of $789 million from other investments in equity securities.
Moreover, the segment recorded net interest income and net gains
of $485 million from debt securities and loans and other net
revenues of $365 million.
division generated revenues of $1.5 billion, up 20% year over
year. The year-over-year fall mainly reflected increased
management and other fees and higher incentive fees.
In the fourth quarter of 2012, operating expenses ascended 3% to
$4.9 billion compared with the prior-year quarter.
Non-compensation expenses were $3.0 billion in the quarter, up
14% year over year. Expenses increased largely due to higher
other expenses. Additionally, results included net provisions of
$260 million for regulatory proceedings.
Evaluation of Capital
As of Dec 31, 2012, Goldman's Tier 1 capital ratio and Tier 1
common ratio under Basel I was 16.7% and 14.5%, up from 15.0% and
13.1%, respectively, in the prior quarter.
Return on common shareholders' equity, on an annualized basis,
was 16.5% in the reported quarter. Goldman's book value per share
and tangible book value per share surged to $144.67 and $134.06
from $140.58 and $129.69 respectively, at the end of the prior
Assets under management (AUM) dipped to $854 billion in the
quarter compared with $856 billion in the prior quarter,
reflecting net outflows of $7 billion, partially offset by net
market appreciation of $5 billion.
Share Repurchase and Dividend Update
During the year 2012, Goldman repurchased 42 million shares of
its common stock at an average price per share of $110.31 and a
total cost of $4.64 billion. Notably, during fourth quarter 2012,
the company repurchased 12.7 million shares of its common stock
at an average price per share of $120.11 and a total cost of
$1.53 billion. Remaining share authorization under Goldman's
existing repurchase program stands at 21.5 million shares.
Concurrent with the earnings release, Goldman declared its
quarterly dividend of 50 cents per share. The dividend will be
paid on Mar 28, 2013 to common shareholders of record as of Feb
Overall, the results of Goldman improved significantly compared
to the prior-year period, mainly driven by top-line growth.
Although the company reported profits, yet increased operating
expenses remain a matter of concern. Moreover, regulatory issues,
including lawsuits and the fundamental pressures on the banking
sector, are expected to dent the financials of the company in the
However, we expect Goldman to benefit from its well-managed
global franchise, strong capital base, and recent investments in
the near future.
An investor with an appetite to absorb risks related to the
market volatility should not be disappointed with an investment
in Goldman over the long haul. Goldman's fundamentals remain
highly promising with a diverse business model and a strong
Moreover, one can consider Goldman to be a value investment due
to its steady dividend-yielding nature.
Goldman currently retains its Zacks Rank #3 (Hold). We believe
such strong results might lead to positive earnings estimate
Wells Fargo & Company
) was the first bank to kick start the results. The company
achieved the twelfth consecutive quarter of growth in earnings
per share by reporting earnings per share of 92 cents in fourth
quarter 2012. Results improved from earnings per share of 88
cents in the prior quarter and 73 cents in the year-ago quarter.
Also, it beat the Zacks Consensus Estimate by 5 cents.
Results at Wells Fargo benefited from improvement in top line,
aided by rise in all segments' revenue. It also reported $250
million in reserve release (pre-tax), attributable to improved
portfolio performance. However, the company experienced rise in
Among other Wall Street big shots,
Bank of America Corporation
) will report on January 17, while
) on January 18.
BANK OF AMER CP (BAC): Free Stock Analysis
CITIGROUP INC (C): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis
MORGAN STANLEY (MS): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
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