Goldman Sachs (NYSE: GS) reported earnings today, and while revenue and profit were -- not surprisingly -- down from a year ago period (but higher compared to the previous quarter), it actually had profits to speak of, $2.09 billion of them to be exact. Indeed, Goldman did it again, surpassing Wall Street expectations for a profit of $3.42 per share on $8.74 billion of revenue with a profit of $4.58 per share and revenue of $9.42 billion.
It would be only natural to ask how Goldman made $2 billion while Lehman lost $2.8 billion. The answers are many, not the least of which is size: Goldman is the world's biggest securities firm, Lehman Brothers (NYSE: LEH) is the smallest among the four Wall Street investment banks. Other factors could include better hedging, financial decision making, diversification, management and strength of balance sheet.
To get a feel of the differences in numbers, Goldman currently holds about $14 billion of leveraged loans, down from $52 billion at their height less than a year ago in August. Residential mortgages, which include the subprime loans, have fallen to about $15 billion on Goldman's balance sheet from $19 billion last quarter. Lehman Brothers' portfolio of mortgages, including commercial loans, stood at $60.8 billion. It also has about $18 billion of leveraged-buyout loans. It is no wonder CEO Fuld took ten minutes at the beginning of the conference call to take responsibility.
Both Bloomberg and the WSJ have very good and detailed explanations of Goldman's results. While many revenue avenues declined, including its biggest segment of trading and principal investments, the figures still showed strength. In some sectors, especially commodity trading, Goldman actually experienced growth.
On Wednesday, the second largest of Wall Street firms, Morgan Stanley (NYSE: MS), is expected to post quarterly results with estimates calling for a 59% drop in net income (Goldman's declined 11%).
Looking at how the stocks are performing, both LEH and MS are down over 4% while GS is about flat at this time (1:42 pm). Year to date, LEH is off 60%, MS down nearly 24% and GS shares have decline 14.75%. An even better picture is yearly performance. Over the past 52 weeks, LEH shares are down nearly 67%, MS down over 54% and GS down nearly 19%.
Some might argue the time for a trade has come and gone as Goldman shares gained some 9.4% (about $22) in the past week. But another way to look at it might be to think whether Goldman stands to gain and grow even more going forward as its rivals struggle, even in this challenging Wall Street environment. If there's one thing Goldman proved is that it knows when to take and when to cut risks. Is it ever too late to get into a solid stock?
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