Goldman's Net Falls 72 Percent After Buffett Dividend

Tuesday, 19 Apr 2011 10:36 AM

 

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Goldman Sachs' first-quarter income fell 72 percent after the bank paid $1.64 billion in dividends to redeem preferred shares it issued to billionaire investor Warren Buffett during the financial crisis.

The New York investment bank said Tuesday that it earned $908 million, or $1.56 per share, compared with $3.3 billion, or $5.59 a share in the first quarter of last year.

Excluding the dividend payment, earnings per common share were $4.38, beating the $3.95 per share forecast of analysts surveyed by FactSet.

Revenue fell 7 percent to $11.9 billion on weakness in the bank's core businesses of trading stocks and bonds and advising clients. Goldman's stock fell 0.9 percent to $152.38 in late morning trading.

The Federal Reserve gave Goldman Sachs Group Inc. permission to repay Berkshire Hathaway last month. While the Fed's decision wasn't a surprise given Goldman's ever-widening profits since the financial crisis, it reflected how far Goldman and other major banks have progressed from the darkest days of September 2008.

At that time, Buffett, who is CEO of Berkshire, helped shore up confidence in Goldman Sachs by making a $5 billion investment in the company. Berkshire received preferred shares that paid a 10 percent annual dividend. Goldman's second-quarter earnings will likely be affected by the redemption, which occurred on April 18.

In its first quarter, revenues from investment banking grew 5 percent to $1.27 billion. However, the bank's performance was mixed.

"In 2010, many of our clients' strategic and investment decisions were burdened by fears about the global economic outlook," Goldman Sachs' chief financial officer David Viniar told analysts in a conference call to discuss earnings.

Revenue from underwriting debt and stock grew 23 percent, but revenue from advising on financial transactions fell 23 percent. Revenues from trading fixed income, currency and commodities for clients also fell 28 percent.

The numbers were in line with first-quarter results reported last week by the investment banking divisions of JPMorgan Chase & Co. and Bank of America Corp. Both reported higher underwriting fees and lower trading. So far, only Citigroup has had a weaker performance compared with its peers. The bank had a 25 percent drop in investment banking, including lower underwriting.

With its reputation for being the highest-paying institution on Wall Street, Goldman's compensation usually draws attention. In the first quarter, Goldman set aside $5.23 billion for compensation, down 5 percent from the same period last year. With a total employee count of 35,400, that works out to about $148,000 per employee in the first quarter.

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