The Goldman Sachs Group Inc.(GS) seeks to buy the remaining 55% of its Australian and New Zealand joint venture for strengthening its business control in Australian investment banking market.

In 2003, GS acquired 45% stake in the Australian brokerage company, JBWere Ltd. to form a joint venture for operating its business in Australia and New Zealand. Moreover, some GS and JBWere employees owned remaining 55%.

In August 2010, the name of the joint venture Goldman Sachs JBWere Group Holdings Pty Ltd. was changed to Goldman Sachs & Partners Australia Group Holdings Pty Ltd.

At current level, GS is strategizing to take full control in Goldman Sachs & Partners Australia Group Holdings Pty Ltd.  According to local newspapers, Australian and New Zealand unit could have a book value of about $1.25 billion (A$1.2 billion), though accounts valued the assets between A$800 million ($835 million) and A$1.2 billion. GS did not disclose the financial terms of the deal.

However, to get the joint venture fully integrated with GS, minimum 75% shareholders’ approval is needed. About 130 equity-owning partners exist in the Australia and New Zealand businesses.

Fundamentally, we expect GS to benefit from its well managed global franchise, strong capital base and industry leading position in trading and asset management. Though the joint venture recorded lower equity trading and overall profit decline in 2010, its prudent business model and strong fundamentals are expected to deliver better earnings in the upcoming quarters.

Estimate Revision Trends

GS is expected to release its first-quarter 2011 earnings on April 19, 2011. Over the last 30 days, 8 of the 14 analysts covering GS have lowered their estimates for the first quarter of 2011, while no upward revision was witnessed. Currently, the Zacks Consensus Estimate for the first quarter is operating earnings of $3.44 per share, a decline of 38.49% from the year-ago quarter. Further, over the last 30 days, operating earnings estimates for the first quarter of 2011 fell significantly from $4.17 per share to $3.44.

GS currently retains its Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Moreover, considering the fundamentals, we maintain a long-term “Neutral” recommendation on the stock. GS’s closest competitor – Morgan Stanley (MS), retains a Zacks #5 Rank (a short-term ‘Strong Sell’ rating).

 
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