Instant View: Goldman Sachs earnings slide on SEC pact cost

NEW YORK (BestGrowthStock) – Goldman Sachs Group Inc (GS.N: ) posted much lower second-quarter earnings on Tuesday after a big charge for the firm’s recent settlement of U.S. Securities and Exchange Commission fraud charges.

Wall Street’s dominant firm said second-quarter earnings fell to $453 million, or 78 cents a share, compared to $2.7 billion, or $4.93 a share, in the year earlier period.

The following is reaction from industry analysts and investors:

PETER KENNY, MANAGING DIRECTOR AT KNIGHT EQUITY MARKETS IN

JERSEY CITY, NEW JERSEY

“Goldman’s numbers were not good. I don’t think the Street was really expecting a surprise to the upside, to be honest. I don’t think that was even baked into anyone’s expectations. But what Goldman Sachs’s numbers really speak to is the cyclical nature of the re-pricing of risk. Their business is down, and it’s down in virtually every segment – not just trading but product sales, innovation in terms of product offerings. The business is down, demand is down, volumes are down. The appetite for risk continues to go lower and continues to recede and as a result, firms that specialize in financial engineering profit off a risk-centric business model are doing less well.”

CHAD MORGANLANDER, PORTFOLIO MANAGER, STIFEL, NICOLAUS &

CO, FLORHAM PARK, NEW JERSEY

“As usual, Goldman beat on the top line and on earnings, and the stock typically falls off after earnings come out. They have strong Tier 1 capital ratios, which is indicative of a well-capitalized bank. However, one has to keep note on their investment banking numbers, which were somewhat disappointing compared to expectations.

“Today’s earnings are somewhat more muted by the continuing legal overhang from lawsuits, as well as other headline risks that are plaguing the company. Goldman is a premiere investment bank, so their real risk is in court, even though the SEC has settled on their one case. Additional suits are going to continue to plague them in the short run.”

JAMIE COX, MANAGING PARTNER OF HARRIS FINANCIAL GROUP IN

COLONIAL HEIGHTS, VIRGINIA

“I thought the numbers were pretty good in light of the trading quarter, but I don’t the think the market agrees with me.

“If you take into account the flash crash and all of the other horrible market conditions we endured during the second quarter, to post numbers that strong is pretty good, but I think people had even higher expectations for Goldman.

“Goldman is notorious for sandbagging, but I think the SEC investigation and the like really dampened their ability to earn money in the second quarter. Now that they have settlement behind them I think they will snap back in the third quarter.”

WILLIAM SMITH, CHIEF EXECUTIVE OFFICER OF SMITH ASSET

MANAGEMENT

“I think it’s good, way above what people were expecting as far as EPS, pre-settlement with the SEC and the UK (bonus tax).

“Asset management did well. They got crushed in underwriting but that’s to be expected. But I don’t think it’s as bad as people were expecting … I think people will eventually come back to the name today.”

GARY TOWNSEND, PRESIDENT AND CEO, HILL-TOWNSEND CAPITAL

“It’s trading down on views that the economy is slowing and that is reflected in the quarter.

“I think the concerns in this market are that revenue is falling short, questions with regard to the broader economy, and how much activity can be expected in the latter part of the year.

The latter part of the year includes the summer, which seasonally is slower, but much depends if we have, just generally, a slowing economy that would accentuate any seasonality.”

WALTER TODD, PORTFOLIO MANAGER, GREENWOOD CAPITAL

ASSOCIATES IN GREENWOOD, SOUTH CAROLINA:

“It’s a pretty significant slowdown in their overall business. Investment banking revenue was down 36 percent year over year, and fixed income, currency, and commodity trading was down 35 percent. We’ve grown accustomed to Goldman bucking the trends in these businesses, but this quarter it seems like maybe they’re more susceptible to broader industry issues. Maybe Superman is turning into Clark Kent.”

Stock Market Money

(Reporting by Dan Wilchins, Leah Schnurr, Ryan Vlastelica, Chuck Mikolajczak, Maria Aspan and Clare Baldwin)

Instant View: Goldman Sachs earnings slide on SEC pact cost