Goldman Sachs' Revenue Likely To Rebound In 2011

We think the overall setting is ripe for a turnaround, though 2011 earnings will be largely dependent on FICC's comeback

Michael Wong, CPA 20 January, 2011 | 11:10AM
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Goldman Sachs (GS) reported net income applicable to common shareholders of $2.2 billion, or $3.79 per diluted share, on $8.6 billion of net revenue for the fourth quarter of 2010. Net revenue was flat sequentially, down 3%, but revenue composition was different from what we--and probably others--had expected. We don't anticipate any significant changes in our $180 fair value estimate for Goldman's shares.

Fixed income, currency, and commodities, or FICC, was the fourth quarter's glaring area of weakness. FICC revenue came in at $1.6 billion, a 39% decline from the previous third quarter. The fourth-quarter weakness in FICC was partially made up by general strength in the company's investment banking, investing lending, and investment management segments. However, the FICC revenue line trajectory is important, as it has comprised 40% to 70% of net revenue over the last two years.

In terms of earnings, expenses must also be considered. The fourth quarter had a $135 million expense benefit from an overaccrual of UK bonus taxes, a $305 million impairment charge for the company's New York Stock Exchange Designated Market Maker rights, and a $320 million charitable contribution expense. The company's largest expense--compensation--came in at only 26% of net revenue.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Goldman Sachs Group Inc390.85 USD-0.26Rating

About Author

Michael Wong, CPA  Michael Wong is a stock analyst at Morningstar.

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