The Goldman Sachs Group, Inc.
) third-quarter 2013 earnings per share came in at $2.88,
significantly surpassing the Zacks Consensus Estimate of $2.48.
Moreover, the reported earnings outpaced the year-ago figure of
$2.85 per share.
BERKSHIRE HTH-A (BRK.A): Free Stock Analysis
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GOLDMAN SACHS (GS): Free Stock Analysis
MORGAN STANLEY (MS): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
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Amid challenging global markets, better-than-expected results
were driven by Goldman's prudent expense management. Moreover,
the company's strong capital position was a positive. However, a
fall in the top line was a major concern.
Net income applicable to common shareholders in the quarter was
$1.43 billion, declining slightly from $1.46 billion recorded in
the prior-year quarter.
Performance in Detail
Goldman's net revenue declined 20% year over year to $6.7 billion
in the quarter under review. Revenues were mainly negatively
impacted by lower institutional client services revenue and
reduced investing and lending revenues. Revenues also lagged the
Zacks Consensus Estimate of $7.6 billion.
Quarterly revenues, as per business segments, are as follows:
Investment Banking division
generated revenues of $1.17 billion, almost in line with the
prior-year quarter. Results reflected lower-than-expected
financial advisory revenues. However, revenues from the
underwriting business (up 13% year over year) were on the
upswing, driven by elevated revenues in equity underwriting.
Institutional Client Services division
recorded revenues of $2.86 billion, down 32% year over year.
Results were impacted by lower revenues in Fixed Income, Currency
and Commodities Client Execution (FICC), marked by decreased net
revenues in currencies, credit products along with mortgages and
interest rate products.
A fall in equity trading revenues (down 18% year over year) was
recorded, due to lower net revenues in equities client execution
and securities services. Though global equity prices rose during
the reported quarter, equities operated in an environment where
lower levels of activity and volatility was recorded.
Investing and Lending division
booked revenues of $1.48 billion in the quarter, down 18% from
$1.80 billion in the prior-year quarter. Results included net
gains of $938 million from investments in equities, net interest
income and net gains of $300 million from debt securities and
loans coupled with other net revenues of $237 million.
Investment Management division
generated revenues of $1.22 billion, up 2% year over year.
Results reflected increased management and other fees, partially
offset by reduced transaction revenues.
Operating expenses descended 25% to $4.6 billion compared with
the prior-year quarter. Expenses decreased largely due to reduced
compensation and employee benefits expense.
Non-compensation expenses were $2.2 billion in the quarter, down
9% year over year. Additionally, results included net provisions
of $142 million for litigation and regulatory proceedings.
Evaluation of Capital
Goldman exhibited a strong capital position in the reported
quarter. As of Sep 30, 2013, Goldman's Tier 1 capital ratio and
Tier 1 common ratio under Basel I was 16.3% and 14.2% compared
with 15.6% and 13.5%, respectively, in the prior quarter,
reflecting revised market risk regulatory capital requirements,
which became effective on Jan 1, 2013.
Return on average common shareholders' equity, on an annualized
basis, was 8.1% in the reported quarter as compared with 10.5% in
the prior quarter. Goldman's book value per share and tangible
book value per share surged to $153.58 and $143.86, from $151.21
and $141.62 respectively, at the end of the prior quarter.
Assets under supervision increased to $991 billion in the quarter
compared with $951 billion in the prior-year quarter and recorded
net market appreciation of $19 billion and net inflows of $17
Capital Deployment Update
During third-quarter 2013, Goldman repurchased 10.2 million
shares of its common stock at an average price per share of
$161.59 and a total cost of $1.65 billion. Remaining share
authorization under Goldman's existing repurchase program stands
at 65.7 million shares.
Notably, on Oct 1, 2013, Warren Buffett's
Berkshire Hathaway Inc.
) : (
) exercised its revised warrant agreement with Goldman for a net
share settlement. Specifically, Berkshire Hathaway received 13.1
million shares worth $2.15 billion and became the sixth largest
external investor in Goldman with 2.91% stake.
Concurrent with the earnings release, Goldman declared its
increased quarterly dividend of 55 cents per share. The revised
dividend reflects a 10% hike from the prior dividend of 50 cents.
The new dividend will be paid on Dec 30, 2013 to common
shareholders of record as of Dec 2, 2013.
We expect Goldman to benefit from its well-managed global
franchise, strong capital base, and recent investments in the
near future. However, regulatory issues, including lawsuits and
the market volatility remain concerns.
The positive developments of the sector and gradually improving
macroeconomic elements helped the banking behemoth maintain its
illustrious track record.
Though there are concerns related to the impact of legal issues
and its global exposure, equity-centric activities in the U.S.
are expected to support Goldman's results in the upcoming
quarters with continued recovery in the capital markets.
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 strong balance
Moreover, Goldman is justly considered to be a value investment
due to its steady dividend-yielding nature. Goldman currently
carries a Zacks Rank #3 (Hold).
Wells Fargo & Company
) achieved the 15th consecutive quarter of growth in earnings per
share by reporting earnings of 99 cents per share in
third-quarter 2013. Results improved from 98 cents earned in the
prior quarter and 88 cents in the year-ago quarter. Also, results
beat the Zacks Consensus Estimate by 2 cents.
Total loans and deposits grew amid economic challenges and
disciplined expense management. Moreover, a strong capital
position and returns on assets and equity acted as the positives.
Wells Fargo also reported $900 million in reserve release
(pre-tax), attributable to an improved credit performance.
However, the company experienced a fall in top line due to
reduced non-interest income.
Further, we look forward to the results of
), which will report on Oct 18.