Goldman Sachs

Goldman Sachs 3Q Trading Revenue Driven by Knight Block Trade?

On Tuesday morning, Goldman Sachs Group, Inc. (NYSE:GS) reported its 3Q12 earnings, with a $2.85 EPS, beating analysts’ estimates with revenue up 49 percent, as compared to the previous year.

The bank, the fifth largest as defined by assets, noted in its report that in the year’s first nine months, it put aside about $11 billion for employee costs, a 10 percent rise, as compared to the previous year on rising revenue.

Goldman Sachs 3Q Trading Revenue Driven by Knight Block Trade?

This expense, which comprises salaries, bonuses, stock awards, and benefits, represented 44 percent of its nine-month revenue, reported Bloomberg. This is the same as 2011’s rate, when $10 billion had been set aside.

Goldman Sachs Group, Inc. (NYSE:GS) has been feeling the pressure to cut its costs, as the challenging global economy will stagnate revenue growth, while seeing new capital rules go into effect. Back in July, the company announced it would cut $500 million from annual expenses, primarily from from compensation, in addition to $1.4 billion of cuts done earlier in 2012.

Goldman Sachs Group, Inc. (NYSE:GS) costs equaled $336,441 for its 32,600 employees, as of Sept. 30. This compares to 34,200 employees from the previous year, who partook in about $10 billion, or $292,836 a person during this the nine-month time period.

Wells Fargo Securities analyst, Matthew Burnell, noted in a Tuesday research report about Goldman’s third-quarter earnings:

Compensation expense remained stable at 44% of net revenue, in line with our expectations. Noncomp expense increased 4% Q/Q to $2.4B due to higher legal/regulatory costs and larger insurance reserve but decreased 10% Y/Y.

In Deutsche Bank’s AG (ETR:DBK) (FRA:DBK) (NYSE:DB) research note regarding Goldman’s Earnings, analysts Matt O’Connor and David Ho addressed the fourth quarter’s compensation numbers:

This in part should set up 4Q12 for a lower comp accrual qtr. 4Q may also include additional cost saves, implying 4Q expense flexibility may be high. Results included $62m of litigation.

For the third quarter, the company reported a $1.51 billion profit, thanks to a rebound in fixed-income trading. Burnell also noted the positive equity trading figures from the third quarter.

He wrote:

Trading showed solid momentum in Q3, rising 20% sequentially, exDVA (JPM: +6%, Citi: 22%), led by a 34% rebound in equity trading (+34% vs. JPM flat and Citi 7%), while FICC improved by 12% Q/Q (JPM +7%; Citi +31%), despite relatively anemic trading volume trends.

Morgan Stanley (NYSE:MS) posed the question of sustainability in their research report by Betsy Gracek and Michael J. Cypres. They asked how much of equities trading revenue was driven by the Knight Capital Group Inc. (NYSE:KCG) block trade?

Looking ahead, Burnell noted:

Despite the relatively solid performance, we expect shares may underperform slightly today, given somewhat lofty expectations leading into the Q3 result.

Goldman Sachs Group, Inc. (NYSE:GS) held an earnings call with analysts at 9:30 ET on Tuesday. Its stock is currently up 0.26%, trading at $124.82.


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