Goldman Sachs Beats Earnings Expectations
MADELEINE BRAND, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Madeleine Brand.
ROBERT SIEGEL, host:
And I'm Robert Siegel.
We begin this hour with a headline that has been rare to nonexistent in the past year or so - an American bank is making a lot of money. The bank is Goldman Sachs. Today it smashed Wall Street's most optimistic expectations for the most recent quarter. Goldman Sachs' profits soared to $3.4 billion in the period of April through June. And that's after the firm repaid billions of dollars it borrowed last year from the federal government.
NPR's Yuki Noguchi reports on the turnaround at Goldman Sachs.
YUKI NOGUCHI: The story of Goldman Sachs is not the story of Wall Street and that became abundantly clear today. Banking analyst Meredith Whitney is renowned for her pessimism about the financial sector and the economy in general. But she appeared on CNBC earlier this week to discuss her report about how Goldman bucks these trends.
Ms. MEREDITH WHITNEY (Bank Analyst): It's actually a bearish call, but a bullish call on the stock.
Unidentified Man: On the stock.
NOGUCHI: It's not just that Lehman Brothers and Bear Stearns have disappeared, bequeathing some of their business to Goldman, or that the availability of talent has expanded Goldman's brain trust. In recent months, other financial institutions needed to raise money to stabilize themselves. And when they did, many of them hired a company that specializes in selling new stock: Goldman Sachs. In a conference call today, Goldman Chief Financial Officer David Viniar said raising money for other banks generated a lot of business and that there are lot more companies that will need to do that in the future.
Mr. DAVID VINIAR (Chief Financial Officer, Goldman Sachs): Look, a lot of financial institution equity was issued. But I think there are still a lot of corporations around the world that need to rebuild their balance sheet. You know, if markets stay okay and stay receptive, I think there will be a lot of equity offerings.
Mr. DICK BOVE (Senior Vice President of Research, Rochdale Securities): This company is the best managed in the industry.
NOGUCHI: Dick Bove is senior vice president of research at Rochdale Securities. He says Goldman suffered during the crisis. It shed 16 percent of its workforce in the last year. But what revived Goldman, Bove said, is the diversity of its business and its superior internal systems. So while some aspects of its business falter, the rest goes gangbusters.
Mr. BOVE: They have the systems. They have the management. They have the capital in place. And all of a sudden the markets have turned favorable for what they do, so earnings literally exploded.
NOGUCHI: Goldman was among the first to say it would repay the government its loans. Among other things, it didn't want the government interfering with how it pays its employees. This year, Bove estimates the average Goldman employee may make $800,000 in salary and bonus.
Mr. BOVE: I think that that will just infuriate everybody.
(Soundbite of laughter)
Mr. BOVE: I think that people are pretty clear. They understand that the financial sector caused them to lose their jobs and they don't want people in the financial sector rewarded, you know, for costing them their job. And I think, therefore, that this is a political issue. It's going to be a hot political issue for a while.
NOGUCHI: As for its financial future, its not clear whether Goldman's enormous profits will carry though to the rest of the year or that its success will rub off on the rest of the financial sector. But this week could be telling -JPMorgan Chase, Bank of America and Citigroup are expected to announce their results later this week.
Yuki Noguchi, NPR News.
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