Goldman Sachs Triples its Profits

Goldman Sachs (NYSE:GS), Wall Street’s largest investment bank, reported on Thursday that it more than tripled its profits in the third quarter compared with the same prior year period. The bank’s shares however, fell $3.79 to $188.50 in midday trading on disappointment that income from the company’s trading operations, which offset a drop in its investment banking business, might not be sustainable.

Goldman’s third-quarter net earnings came in at $3.19 billion, or $5.25 a share, in the three months ended Sept. 25, compared with $845 million, or $1.81 a share for the 3Q ended Aug. 29, 2008. Analysts were anticipating profits of $4.24. The New York-based firm said that bond, commodities and currency trading buoyed the co.’s profits for the second straight quarter. Net revenues in interest rate products were also strong and significantly higher on a year-over-basis [y/y], while net revenues in commodities and currencies were lower compared with a year ago.

The bank, which paid back $10 billion in taxpayer funds to the U.S. government in June, said its revenues compared with Q2 dropped in every division except principal investing and asset management. Investment banking revenue, traditionally considered the foundation of the firm’s business, fell to $899 million, 31% lower than the third quarter of 2008 and 38% worse than the most recent quarter. Net revenues in financial advisory were $325 million, 47% lower y/y, primarily reflecting a significant decline in industry-wide completed M&A. The firm’s Underwriting business declined as well, posting a 15% drop on a y/y basis. Meanwhile, Net revenues in Trading and Principal Investments were $10.3 billion, significantly higher that the 3Q of 2008.

Lloyd Blankfein, Goldman Sachs’ chief executive, said the co. is starting to see a rebound across many of its businesses even as a fragile economy and consumers continue to struggle : “Although the world continues to face serious economic challenges, we are seeing improving conditions and evidence of stabilisation, even growth, across a number of sectors. Because the job market, and growth more generally, remain under stress, we continue to be focused on actively helping our clients in order to promote greater economic activity,” Blankfein said in a statement.

Goldman said on Thursday it had set aside $5.35 billion for compensation in the third quarter — its biggest single expense — which was higher than a year ago, thanks to stronger revenues. So far this year, Goldman Sachs has set aside $16.7 billion to pay employees, compared with $11.4 billion after the first three quarters of last year.

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