Goldman Sachs Group Inc.’s (GS) first quarter 2010 earnings per share of $5.59 were significantly ahead of the Zacks Consensus Estimate of $3.98. Results reflected strong performance in investment banking and trading and principal investments, which were partially offset by higher-than-expected expenses and net outflows, along with a decline in asset management and securities services.

GAAP net income in the first quarter of 2010 was $3.3 billion, compared to $4.8 billion in the prior quarter and $1.7 billion in the prior-year quarter. Goldman tops the industry by acquiring the leading position in worldwide announced and completed mergers and acquisitions (M&A) and public common stock offerings for the year to date, putting behind it top rivals such as Credit Suisse Group (CS) (#2) and Morgan Stanley (MS) (#3).

By Business Segment

Total revenue increased 33% year-over-year and 36% from the prior quarter to $12.8 billion. Fourth quarter revenues by business segment are as follows:

Investment Banking generated revenue of $1.18 billion, up 44% year over year but down 28% from the prior quarter. Results reflected an increase in revenue of debt and equity underwriting. However, these were partially offset by lower-than-expected revenue from the financial advisory business as a result of weakness in M&A activities across the industry.

Trading and Principal Investments generated revenue of $10.25 billion, up significantly — 60% — year over year and 43% from the prior quarter. Results were augmented as a result of an increase in revenues in equity trading (up 43% year over year), fixed income (up 13% year over year) and Principal Investment portfolio that increased substantially from negative income in the year-ago period.

Asset Management and Securities Services generated revenue of $1.34 billion, down 8% year over year and 14% from the prior quarter. While revenues from Asset Management remained flat, Securities Services were down 21% due to rigid securities lending spreads. Results also reflected lower-than-expected incentive, management and other fees along with outflows in money market assets.

Operating expenses were up 12% year over year to $7.62 billion, increasing substantially from $2.2 billion in the prior quarter. Expenses soared as a result of higher non-compensation spending, primarily on market development, personnel costs and professional fees, during the quarter.

At Mar 31, 2010, Goldman’s Tier 1 capital ratio under Basel I was 15.0%, flat as of Dec 31, 2009. Tier 1 common ratio under Basel I was 12.4% as of Mar 31, 2009, compared to 12.2% as of Dec 31, 2009. During the reported quarter, ROE on annualized basis decreased substantially to 20.1% from 31.7% reported in the prior quarter.

Goldman’s book value per share improved 4% to $122.52 as compared to $117.48 as of Dec 31, 2009. Tangible book value per share increased 3% to $111.41 as compared to $108.42 as of Dec 31, 2009. Assets under management decreased $31 billion to $840 billion in the quarter, due to $39 billion in net outflows, primarily in money market assets, which were partially offset by $8 billion in market appreciation and inflows in fixed income assets.

Dividend Update

During the reported quarter, Goldman declared a dividend of $0.35 per common share to be paid on Jun 29, 2010 to common shareholders of record as on Jun 1, 2010.

While Goldman’s peer Morgan Stanley is scheduled to release its results before the market opens on Apr 21, another rival, Citigroup Inc. (C) performed decently after posting losses for all of 2009 in its recent earnings release. Nevertheless, Goldman has performed better than market expectations, thereby strongly surviving the financial crisis. The company benefited from less exposure to toxic mortgage-backed securities and increased client activity.

However, current litigation issues on civil frauds, consumer lending and higher bonus payments continue to bother Goldman, while also increasing the risk of raising a furor in the company’s financials and its market reputation. Fundamentally, we believe the company is poised to grow significantly with its well-diversified business model and a more favorable operating environment. In all, we think Goldman’s sturdy capital and liquidity will lead to an increased profitability from newer opportunities once the economy recovers.
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