Marc Gayle

So Goldman Sachs has officially released results for Q1 - 2009.  They were significantly better than analysts' estimates. Surprise, surprise. Most intriguing though, are the details of their earnings. When they just announced the results they caught Wall Street by surprise and there was a rally, but it seems that something changed investors' minds. Either the $5B equity dilution they announced, or there is something else in their earnings report that investors are acting on. Let's look more closely at their numbers. [caption id="" align="aligncenter" width="512" caption="Henry 'Hank' Paulson - Ex-CEO of Goldman"] [/caption] The breakdown is as follows: Revenues

• Net Revenues of $9.43B, Net Earnings of $1.81B
• Diluted EPS of $3.39 vs $3.23 for Q1 - 2008 vs -$4.97 for Q4 - 2008. 
• Diluted EPS of $3.39 beating the average analyst estimate by $1.64.
• Net Revenues in Investment Banking were $823M, 30% lower than Q1 - 2008 
• Net Revenues in Financial Advisory were $527M, 21% lower than Q1 - 2008
• Net Revenus in Underwriting Business were $296M, 42% lower than Q1 - 2008
• Net Revenues in Trading & Principal Investments were $7.15B vs $5.12B for Q1 - 2008 & -$4.36B for Q4 - 2008
• Net Revenues in Fixed Income, Currency & Commodities (FICC) were $6.56B, more than double Q1 - 2008 (no figure given)
• Net Revenues in Equities were $2B, 20% lower than Q1 - 2008
• Net Revenues in Asset Management & Securities Services were $1.45B, 29% lower than Q1 - 2008 vs 17% lower than Q4 - 2008.
  • Assets Under Management (AUM) decreased $27B to $771B, due to $16B market depreciation and $11B in net outflows.
  • Net Revenues for Securities Services were $503M, 30% lower than Q1 - 2008.

Expenses

• Operating Expenses were $6.8B, 10% higher than Q1 - 2008.
• Compensation & Benefits Expenses were $4.71B, 18% higher than Q1 - 2008. 
• Ratio of Compensation & Benefits to Net Revenues increased to 50%, vs. 48% for Q1 - 2008.
• Employment levels decreased 7% compared with Q4 - 2008.
• Non-compensation expenses were $1.62B, 21% lower than Q1 - 2008 vs. 25% lower than Q4 - 2008.
• Effective Income Tax Rate was 31%, up from 1% for 2008 & 29.5% for Q1 - 2008  (this 1% figure makes sense due to all the write-offs and losses they took in 2008)

This is why accounting is so tricky. I am a bit confused. Their Fixed Income Assets actually decreased from $259B Q1 - 2008 to $248B Q1 - 2009, actually their total AUM decreased to $771B from $873B in Q1 2008. They had net (outflows) of $3B in Fixed Income as opposed to a Net Inflow of $2B in Q1 - 2008.  So the big question is, how on earth (in a quarter when the majority of all their streams of revenue declined) did they pull off revenues in Fixed Income Commodities & Currency doubling. FICC Revenues jumped from $3.14B in Q1 - 2008 to $6.557B in Q1 - 2009. How is that possible, when their AUM across the board declined, and revenues across the board declined? So their "revenues" increased, in a year when they took TARP money, raised private equity from the likes of Warren Buffet, and received a payout from AIG and they decided to increase executive compensation?  I am not saying that Goldman is doing fraudulent activity, but these results do raise some flags. It could be that I have misread something, or glanced over something glaringly obvious to the 'trained eye', and if that's the case please point out my error in the comments.  Click here to see where I got all the above info from.  What would be interesting to look into is if Paulson currently owns (or owns an interest in any fund/company) that owns Goldman stock. I am not really one to rally the troops and bring out the pitch forks, but sometimes I am most definitely tempted!