Net income rose 48 percent to $2.24 billion, or $4.57 a share, from $1.52 billion, or $2.88, a year earlier, the New York-based firm said today in a statement. Profit topped the $3.21 average estimate of 22 analysts surveyed by Bloomberg.
The results marked the second straight year Goldman Sachs beat third-quarter estimates by eschewing its traditional practice of allotting the same percentage for pay in each of the first three quarters of the year before adjusting the amount in
the last period. Chief Executive Officer Lloyd C. Blankfein, 60, has sought to limit expenses to keep return on equity above 10 percent while he waits on the trading environment to improve.
“Goldman’s compensation ratio is a wild card,” Devin Ryan, a bank analyst at JMP Group Inc. in New York, said before the results were announced. “It’s a little bit of optics, because if the company didn’t adjust their comp ratio in the third quarter, then that would just leave them more room in the fourth quarter.”
Revenue rose 25 percent to $8.39 billion, beating analysts’ estimates on gains from the firm’s own investments and a one-time benefit from paying off junior subordinated debt.
Goldman Sachs slid 2.4 percent to $173 at 8:04 a.m. in New York. The shares were little changed this year through yesterday.
Compensation Costs
Compensation, the firm’s biggest expense, was $2.8 billion, or 33 percent of revenue, compared with 35 percent a year earlier. That brought the nine-month ratio to 40 percent, compared with 41 percent in same period of 2013.Some analysts predicted the firm would set aside 43 percent of revenue, as it had done in each of the first two quarters of the year. Chief Financial Officer Harvey Schwartz has said Goldman Sachs makes the decision based on where it thinks the ratio will finish the year.
Return on equity, a measure of profitability that takes into account how much capital the business uses, was 11.2 percent in the first nine months, compared with 11 percent for all of 2013. The firm raised its quarterly dividend by 5 cents and said it bought back $1.25 billion of stock during the quarter.
Fixed-income, currency and commodity trading revenue was $1.98 billion, up 53 percent from a year earlier, excluding an accounting adjustment and a $157 million gain from extinguishing debt. That compared with estimates of $1.93 billion from Macquarie Group Ltd.’s David Konrad and $2.28 billion from Doug Sipkin at Susquehanna Financial Group LLLP.
The increase breaks a four-quarter streak of declines.
Fixed Income
Banks including JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. have exceeded analysts’ estimates for fixed-income trading amid a rebound in activity in September. Goldman Sachs President Gary Cohn, 54, said in May that low volatility and interest rates had been crimping trading volume in the first half of the year.Revenue from the equities division declined 11 percent from a year earlier to $1.46 billion, excluding accounting gains and a $113 million benefit from extinguishing debt. That compared with Konrad’s $1.52 billion estimate and a projection of $1.57 billion from Credit Suisse Group AG’s Christian Bolu.
Total revenue from sales and trading, led by Pablo J. Salame, Isabelle Ealet and Ashok Varadhan, was $3.44 billion. That was below the $3.74 billion at Citigroup and $4.74 billion at JPMorgan.
Trading Revenue
Blankfein has said his firm is committed to its trading businesses and will gain as others exit some sectors. The bank’s trading revenue fell in the first half for the fifth consecutive year, leading the company to rely on other businesses to maintain a higher return on equity than most rivals.Third-quarter revenue from investment banking, the business run globally by Richard J. Gnodde, David M. Solomon and John S. Weinberg, climbed 26 percent to $1.46 billion. It was the ninth consecutive quarter that the division’s revenue rose from a year earlier.
Goldman’s figure included $594 million of financial-advisory revenue, including fees for takeover advice, an increase of 40 percent. Revenue from underwriting climbed to $870 million in the quarter, including $444 million from debt underwriting and $426 million for equity offerings.
M&A Advice
The bank jumped to No. 1 in investment-banking revenue in the first nine months of the year, after ranking third each of the past four years. Goldman Sachs held the top spot among arrangers of global equity offerings in the first nine months, according to data compiled by Bloomberg. It ranked first in advising on announced mergers and acquisitions and fifth in underwriting U.S. bonds, the data show.Investing and Lending, which includes gains and losses on Goldman Sachs’s own investments in stocks, debt, real estate, private equity and hedge funds, as well as loans, posted third-quarter revenue of $1.69 billion, up from $1.48 billion a year earlier.
The segment’s revenue topped estimates of $1.54 billion from Credit Suisse’s Bolu and $1.4 billion from JMP’s Ryan. The unit has surpassed expectations every quarter this year and generated $5.29 billion in the first nine months, the most since 2010.
Goldman Sachs’s third-quarter earnings probably benefited from a stake it held in Mobileye NV (MBLY), an automated-driving technology firm that went public in July. The bank held almost 2 percent of the company through a subsidiary, and more through a hedge fund that also includes client money. Mobileye more than doubled from its offering price to $53.59 by the end of the quarter, giving it a valuation of more than $11 billion.
Revenue from asset management, run by Timothy O’Neill and Eric Lane, rose 20 percent to $1.46 billion. Total assets under supervision climbed $8 billion during the quarter to $1.15 trillion.
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