Earnings Preview: Goldman Sachs

OVERVIEW: Investment banks continued to face problems because of deterioration in the credit and mortgage markets between March 1 and May 31--the fiscal second quarter for Goldman Sachs as well as Lehman Brothers Holdings Inc. and Morgan Stanley.

Lehman Brothers already announced it lost $2.87 billion, or $5.14 per share, during its fiscal second quarter due to hedging losses and further write-downs on the value of mortgage- and other credit-related holdings.

Throughout May, analysts reduced their earnings forecasts for investment banks as ineffective hedging practices became a mounting problem for the sector.

Financial services firms have taken more than $250 billion in write-downs related to credit market turmoil since the middle of 2007, though Goldman Sachs has been among the least affected. Goldman Sachs has taken about $4.4 billion in write-downs since the middle of last year.

BY THE NUMBERS: Analysts polled by Thomson Financial, on average, forecast earnings of $3.42 per share for the quarter on revenue of $8.74 billion. A month earlier, analysts anticipated Goldman Sachs would earn $3.71 per share.

ANALYST TAKE: Goldman Sachs is "likely the best in the group," said Wachovia Capital Markets LLC analyst Douglas Sipkin.

Sipkin said Goldman Sachs should get a boost from equity banking, as it was able to take advantage of financial services firms raising new capital by managing offerings.

"We expect equity banking to be in excess of $500 million, up more than three times from last quarter," Sipkin wrote in a research note.

Sipkin expects Goldman Sachs to earn $3.99 per share during the quarter.