Transcripts

Goldman Sachs' Gold Rush

LINDA O'BRYON: Wall Street toasted one of its own today, celebrating blockbuster quarterly results from Goldman Sachs. The investment bank reported a 64 percent increase in net income in the first quarter, far better than analysts expected. Goldman's stock surged 6 percent on that news and is now trading at an all-time high. As Suzanne Pratt reports, experts say Goldman is not alone in its good fortune.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: As the first brokerage firm to report its quarterly profits, Goldman Sachs set the bar very high for its rivals. The investment bank earned a stunning $5.08 a share in the quarter ended February 24. That compares to just under $3 in the year ago period and it crushed the analysts' consensus. Experts describe the quarter as simply huge, adding that everything went right in the December through February period. KBW, which does investment banking business with Goldman, says trading revenue and M&A activity helped boost the numbers.

LAUREN SMITH, BROKERAGE ANALYST, KBW: Really across the board strength in all their businesses. It sounds like a broken record, but a record in virtually every business. On a revenue basis, it was the highest revenue quarter for Goldman ever.

PRATT: Goldman's good fortune triggered a rally in brokerage stocks today, with Lehman Brothers, Bear Stearns, Merrill Lynch and Morgan Stanley all gaining ground. Few sectors have done as well as brokerage stocks in the past few years thanks to stellar profit growth. So far this year, the S&P investment bank and brokerage index is up nearly 11 percent compared to just under 3 percent for the broader market. Many analysts say conditions are still good for brokers in the coming months.

ROBERT HANSEN: We think that the investment banks are perhaps best leveraged to a pickup in the economy within the financial services industry. So we're generally very bullish on the group. We have "strong buy" recommendations on Goldman Sachs and Merrill Lynch and we have a buy rating on Lehman Brother.

PRATT: Nevertheless, some worry interest rates will rise too fast, slow the economy and create headwinds for the sector. Still, others are only guarded in their optimism, pointing to the seasonality of the group.

SMITH: They might take a pause I'd say maybe the middle part, summer of this year. But at least, as long as the underlying fundamentals hold in, I don't think no, that the party is over for these stocks.

PRATT: Lehman Brothers and Bear Stearns are scheduled to report their quarterly results later this week. Analysts expect both of those firms to do well, but they add Goldman's numbers will be tough to match. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.