Goldman Sach's investment gains lead to profit beat
Goldman Sachs Group Inc reported higher-than-expected quarterly earnings on Tuesday as revenue more than doubled on big gains in stocks and bonds that the Wall Street bank holds as investments.
However, return on equity - a measure of how the company wrings profit from its balance sheet - remained in a single-digit percentage range, and investment banking and trading results showed signs of weak client activity.
The investment bank lifted its dividend for the second time in a year, which is unusual because Goldman has said it would prefer to use capital to invest in businesses.
"I don't know that a lot of people own Goldman for a dividend play, but it certainly doesn't hurt," said Regency Wealth Management portfolio manager Andrew Aran, who owns Goldman shares for some clients. "It's a sign that management probably feels a little conservative in this environment."
Goldman also spent $1.25 billion buying back stock during the quarter.
Goldman reported a third-quarter profit of $1.5 billion, or $2.85 per share, compared with a year-earlier loss of $428 million, or 84 cents per share.
Analysts on average had expected earnings of $2.12 per share, according to Thomson Reuters I/B/E/S.
After Goldman's report, some analysts and investors said they had been expecting an even bigger earnings beat, given strong results at investment banking divisions of JPMorgan Chase & Co and Citigroup Inc in recent days.
"The bar had been raised," said Ratel Capital Management analyst Mitchell Protass.
Goldman's net revenue rose to $8.35 billion from $3.6 billion.
Return on equity was 8.6 percent for the quarter, exceeding the 5.4 percent that Goldman reported for the previous period, but still well below the typical 15 percent that investors look for at investment banks in better market environments.
In a statement, Goldman Chief Executive Officer Lloyd Blankfein described the bank's third-quarter performance as "generally solid in the context of a still challenging economic environment."
Most of the revenue gains came from the investing and lending division, which consists of stocks and bonds that Goldman holds as investments. The value of those assets rose after the U.S. Federal Reserve unveiled a new program to boost liquidity, but trading volumes and deal activity were still muted.
That business generated $1.8 billion in revenue; a year earlier, it reduced overall revenue by $2.5 billion.
Goldman shares were up 0.5 percent at $124.15 in morning trading.
The bank raised its quarterly dividend to 50 cents per share from 46 cents.
The value of Goldman's debt rose during the latest quarter, requiring the company to take a charge that reduced earnings by $370 million. For the year-earlier period, it took a similar accounting charge as well as a charge for buying back preferred stock from billionaire investor Warren Buffett.
(Reporting by Lauren Tara LaCapra in New York; Editing by John Wallace and Lisa Von Ahn)