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Dow-30 Earnings: Goldman Sachs – Fourth Quarter 2013
Shares of financial titan GoldmanSachs (GS - Free Goldman Stock Report) are down more than 2% this morning after the company reported a substantial decline in diluted earnings per share for the fourth quarter of 2013. Share net came in at $4.60, down from $5.60 for the same period in 2012. The drop was due partly to significantly reduced fixed-income trading revenues. That business still accounts for over 25% of companywide revenue, which is a much higher proportion than for most other bank holding companies. The Fixed Income, Currency, and Commodities segment, as a whole, saw a 13% decline in revenue for the full year of 2013, due partly to a runup in interest rates since last May after the first indications that the Federal Reserve intended to begin tapering its bond purchases as the economy recovers.
The firm's equity business, meanwhile, saw lower client stock trading despite record highs for stock market indices. Net revenues from equities declined 14% in 2013.
The Investment Banking business, on the other hand, saw a healthy rise in the December period. Equity underwriting revenue more than doubled, year over year, as more-generous business valuations have brought companies to the markets to seek capital, particularly through initial public offerings. Advising on mergers and acquisitions rose as well, on increased activity on that front.
Annualized return on equity for the company was 12.7% in the final quarter of 2013, an upward trend from the full-year figure of 11.0%. However, this sum is still down dramatically from pre-financial crisis figures.
Going forward, the implementation of the Volcker Rule, which is being put in place by regulatory agencies in order to limit banks' ability to engage in proprietary trading, is of particular concern to Goldman Sachs, as much of its revenue still comes from trading activities and hedge fund holdings, though it has already begun to wind down those activities.
While the fourth quarter results disappointed the market, the report was roughly in line with our previous estimate, and we are leaving our forward-looking estimates unchanged for the time being. We expect earnings of about $16.00 per share for 2014. Furthermore, the shares possess solid long-term appreciation potential.
About The Company: The Goldman Sachs Group is a global investment banking and securities firm. It operates in four business segments: Investment Banking (15% of 2012 revenues); Institutional Client Services (53%); Investing & Lending (17%); and Investment Management (15%). Last year, 41% of the company’s revenues came from outside of the Americas.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.