Goldman Sachs Group, Inc. (GS), the Wall Street firm that became a bank holding company last year, said Monday after the markets closed that first quarter profit rose from last year, helped by strong revenue growth in its fixed income, currency and commodities businesses. The company also said it has commenced a $5 billion public offering of its common stock, which along with additional resources, may be used to repay TARP funds.
The New York-based company reported net income of $1.81 billion for the first quarter ended March 27, 2009, compared to $1.51 billion for the first quarter ended February 29, 2008.
After attaining the bank holding status, the company changed its fiscal year end from the last Friday of November to the last Friday of December effective fiscal 2009.
Net income applicable to common shareholders for the first quarter was $1.66 billion or $3.39 per share, compared to $1.47 billion or $3.23 per share in the prior year quarter.
Net revenues for the first quarter rose 13% to $9.43 billion from $8.34 billion in the same quarter last year.
Investment banking net revenue for the quarter fell 30% to $823 million, as financial advisory net revenue declined 21% to $527 million due to lower levels of deal activity.
Net revenues in trading and principal investments rose 40% to $7.15 billion from $5.12 billion in the year-ago quarter. Net revenues in fixed income, currency and commodities jumped 109% $6.56 billion in the first quarter from $3.14 billion in the prior year quarter, reflecting strength across most businesses, including record results in interest rate products and commodities.
Principal Investments recorded a net loss of $1.41 billion for the first quarter, including $640 million from real estate principal investments, $621 million from corporate principal investments and a $151 million related to the firm's investment in Industrial and Commercial Bank of China Ltd. Goldman Sachs bought a minority stake in the Chinese bank in 2006.
Asset management net revenues for the quarter fell 28% year-over-year to $949 million due to lower management and other fees, reflecting lower assets under management mainly as a result of market depreciation and lower incentive fees.
During the quarter, assets under management decreased $27 billion to $771 billion due to $16 billion of market depreciation, primarily in equity assets, and $11 billion of net outflows.
Securities services net revenues for the quarter declined 30% to $503 million, mainly reflecting the impact of lower customer balances compared with the first quarter of 2008.
Given the difficult market conditions, we are pleased with this quarter's performance, said Lloyd Blankfein, Goldman Sachs Chairman and Chief Executive Officer. Our results reflect the strength and diversity of our client franchise, the resilience of our business model and the dedication and focus of our people.
The company's book value per common share was $98.82 at March 27, 2009, essentially unchanged from November 28, 2008, and its annualized return on average common shareholders' was 14.3 percent in the first quarter.
Goldman Sachs also declared a dividend of $0.35 per common share to be paid on June 25 to common shareholders of record on May 26.
Separately, Goldman Sachs announced that it has commenced a public offering of $5 billion of its common stock for sale to the public. The underwriter will have a 30-day option to purchase up to an additional 15% of the offered amount of common stock from the company to cover over-allotments, if any.
After the completion of the stress assessment, if permitted by our supervisors and if supported by the results of the stress assessment, the company said it would like to use the capital raised plus additional resources to repay the $10 billion of capital it received from the U.S. government under the Troubled Assets Relief Program.
One of the biggest reasons for Goldman Sachs to quickly repay the money is to avoid any restrictions placed on it by the government, such as limits on executive pay. The bank has also likely received concerns from clients about being under the government's thumb.
Confirming media speculation, Goldman Sachs earlier Monday said its unit Goldman Sachs Asset Management has raised its fifth dedicated private equity secondaries fund, GS Vintage Fund V, with about $5.5 billion in capital commitments.
Goldman Sachs' results, released a day earlier than anticipated, came days after Wells Fargo & Co. (WFC) said it expected to report record first quarter earnings of $3 billion. It is also a remarkable recovery for Goldman Sachs, which in December reported its first quarterly loss since going public in 1999.
Following the collapse of Lehman Brothers Holdings Inc. and several other events that rocked the financial sector last year, Goldman Sachs and the other surviving brokerage giant Morgan Stanley (MS) became bank holding companies, providing them with access to the federal government's $700 billion rescue plan.
Goldman Sachs was among the first banks to receive funds as part of the $700 billion government bailout. The company received $10 billion in fresh capital from the government in return for preferred stock and warrants to purchase common shares.
In September, Goldman Sachs announced the receipt of a $5 billion investment from billionaire investor Warren Buffett's Berkshire Hathaway, Inc. (BRKA, BRKB). The company agreed to sell $5 billion of perpetual preferred stock to Berkshire in a private offering. Along with the offering, Berkshire will receive warrants to purchase $5 billion of common stock with a strike price of $115 per share, exercisable within five years.
Also in September, Goldman Sachs raised $5.75 billion through sale of 46.7 million shares in a public stock offering.
With the good news from Goldman Sachs and Wells Fargo, investors will now be anxiously waiting for results from Citigroup Inc. (C) and Bank of America Corp. (BAC) to see whether the banking sector has been really recovering from the huge losses caused by the credit crisis and the recession.
Goldman shares, which have traded in a range of $47.41 to $203.39 over the past year, closed Monday's regular trading session at $130.15, up $5.82 or 4.68%. The stock is currently losing $2.50 or 1.925 in after hours trading.
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