(Bloomberg) -- Goldman Sachs Group Inc., the fifth- biggest U.S. bank by assets, reported second-quarter earnings that beat analysts’ estimates on higher asset-management revenue a gain from the firm’s own investments.
Net income slid 11% to $962 million, or $1.78 a share, from $1.09 billion, or $1.85, a year earlier, the New York-based company said today in a statement. Earnings surpassed the highest estimate among 25 analysts surveyed by Bloomberg.
Goldman Sachs’s second-quarter revenue from asset management rose 5% to $1.33 billion, exceeding the $1.18 billion average estimate of seven analysts. Chief Executive Officer Lloyd C. Blankfein, 57, who has run the company for six years, last month blamed a temporary reaction to the financial crisis for a slowdown that reduced Goldman Sachs’s first-half revenue to the lowest since 2005.
“The markets are challenged pretty much across the board,” William Fitzpatrick, a Milwaukee-based analyst at Manulife Asset Management, which has about $800 million under management including Goldman Sachs shares, said before the results were released. “I would be surprised if we didn’t hear about continued cost reductions.”
The bank said today it’s “in the process of implementing additional expense-reduction initiatives.”
Goldman Sachs climbed to $99.80 in New York trading at 8:22 a.m. from $97.68 at the close yesterday. The stock is up 8% this year through yesterday and down 24% from a $128.07 peak on March 26. The company bought back $1.5 billion of shares during the quarter, it said today.
Private Equity
Investing & Lending, the segment that includes Goldman Sachs’s profits and losses from its stakes in private-equity and hedge funds as well as from companies such as Facebook Inc. and Industrial & Commercial Bank of China Ltd., produced a $203 million gain in the second quarter, down from a $1.04 billion gain a year earlier. The estimates of seven analysts polled by Bloomberg ranged from a $700 million loss to a $200 million gain.
In Facebook’s initial public offering in May, Goldman Sachs sold 6.18 million of the 14.2 million shares it owns for its own account as well as 22.5 million of the 51.7 million shares held in funds managed for clients, according to the Facebook prospectus. After being sold at $38 apiece in the IPO, which Goldman Sachs helped to manage, Facebook shares have dropped, closing yesterday at $28.245.
Stock Indexes
After surging in the first quarter, major global stock market indexes including the Standard & Poor’s 500 and Hang Seng Index dropped in the second quarter amid signs of slowing economic growth in China and the sovereign debt crisis in Europe.
“During the second quarter, market conditions deteriorated and activity levels for both corporate and investing clients were lower given continued instability in Europe and concerns about global growth,” Blankfein said in the statement.
Second-quarter revenue at Goldman Sachs fell 9% from a year earlier to $6.63 billion and was down 33% from the first quarter. The average estimate of 16 analysts surveyed by Bloomberg was for $6.25 billion in second-quarter revenue.
For the first six months of the year, Goldman Sachs produced $16.6 billion of revenue, down 14% from a year earlier. Goldman Sachs has cut 3,200 jobs in the past 12 months, including 100 in the second quarter, to adapt to a slump in trading, which accounted for 58% of revenue this year.
The firm, which began counting consultants and temporary workers in its staff numbers in 2009, said today it employed 32,300 people on June 29, down from 32,400 at the end of March.
Compensation Costs
Second-quarter expenses of $5.21 billion were down 8% from a year earlier. Compensation, the biggest portion of the firm’s expenses, fell 9% to $2.92 billion.
For the first six months of the year, the compensation cost, which includes salaries, bonuses, benefits and the expense for awards granted in previous years, totaled $7.29 billion, or 44% of revenue. That’s an average of $225,789 per employee, down from $237,662 a year earlier.
Second-quarter revenue from trading, run by Isabelle Ealet, Pablo J. Salame and Harvey M. Schwartz, rose 11% to $3.89 billion and was down 32% from the first quarter. The average estimate of seven analysts surveyed by Bloomberg was for $3.81 billion of trading revenue in the quarter.
Within that division, fixed-income, currency and commodities trading revenue rose 37% to $2.19 billion and was 37% lower than the first quarter. Equities-trading revenue fell 12% to $1.7 billion, a 25% decrease from the first quarter.
Investment Banking
The investment-banking department, run globally by Richard J. Gnodde, David M. Solomon and John S. Weinberg, made $1.2 billion of revenue, down 17% from a year earlier. The average estimate of seven analysts was for $957 million in second-quarter investment-banking revenue.
Fees from takeover advice and other financial advisory assignments totaled $469 million in the quarter, 26% lower than a year earlier. Gene T. Sykes, based in Los Angeles, runs Goldman Sachs’s global mergers and acquisitions group, which ranks second this year in the value of announced takeover assignments it’s handling, according to data compiled by Bloomberg.
Revenue from equity underwriting, including the Facebook IPO, fell 37% from a year earlier to $239 million. Goldman Sachs ranks fifth this year in global equity, equity- linked and rights offerings, down from first place in the first half of last year, according to data compiled by Bloomberg.
Corporate Bonds
Debt underwriting revenue increased 14% from a year earlier to $495 million. Goldman Sachs is seventh among underwriters of corporate bonds this year, the same position it held at this point last year, the data show.
The investment-management division, led by Eric S. Lane and Timothy J. O’Neill, produced $1.33 billion of revenue, up 5% from a year earlier. Assets under management rose to $836 billion from $824 billion at the end of March. Goldman Sachs completed its purchase of Burlington, Vermont-based Dwight Asset Management from Old Mutual Asset Management on May 15.
JPMorgan Chase & Co., the biggest U.S. bank by assets, last week said second-quarter profit at its investment bank fell 7% from a year earlier even as it reduced costs 12%. Citigroup Inc., the third-biggest U.S. bank, reported a 12% drop in second-quarter earnings yesterday and said it lowered total operating expenses 6%.
