Will Goldman Sachs Get Sacked By Sub-Prime Problems?
Tuesday, March 13, 2007SUSIE GHARIB: There are still questions tonight about how the sub-prime meltdown will affect brokerage firms. Goldman Sachs reported record earnings today, the first of three big investment banks to report this week. But Goldman's books closed just days before the sub-prime problems ramped up. Scott Gurvey reports.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was a blow- out quarter for Goldman Sachs. Not exactly a surprise for the world's number-one securities firm in terms of market value. Wall Street had expected a slight decline in earnings from the year-ago period but, as it has repeatedly in recent quarters, Goldman beat the forecasts, posting record earnings of $6.67 a share for its first fiscal quarter, which ended February 23. Analysts surveyed by Thomson First Call were looking for $4.97 a share. Banking analyst Justin Fuller of Morningstar says it was a well-balanced report.
JUSTIN FULLER, BANKING ANALYST, MORNINGSTAR: It was certainly across the board, but really two things stood out for me. One, their principal transactions or their proprietary trading business continued to generate very strong returns, especially in the real estate business. And then secondly, their advisory business in the investment bank -- they advised on a lot of major transactions this last quarter -- and that was reflected in the results.
GURVEY: Investment banks usually do well in the first quarter and analysts are looking for good reports from Lehman Brothers tomorrow and Bear Stearns on Thursday. But recent market turmoil is expected to weigh on the banks in the quarters ahead. Goldman's reporting period ended four days before the Dow Industrial Average dropped 416 points. And still unknown is the ultimate impact of bad debts in the sub-prime mortgage market. Goldman is said to have less exposure to this high risk sector than some. Matthew Albrecht, equity analyst of Standard & Poor's, says others could be harder hit.
MATTHEW ALBRECHT, EQUITY ANALYST, STANDARD & POOR'S: Bear Stearns and Lehman Brothers have been the two longest -- of the brokers, they have the most exposure or have the longest standing exposure to the market. That means a few things. First, they securitize a larger portion of these assets than the other members of -- than the other brokers. At the same time, because they originate these mortgages but at the same time they've done it for such a long time, that they have more control over that process.
GURVEY: How well they've controlled their risk is the question analysts will be asking when Bear Stearns and Lehman Brothers have their earnings calls this week. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
