Goldman Sachs (GS) Earnings

Unlike widget makers or commodity stocks, there is very little analysis I can do with an investment bank - they are opaque black boxes with moving parts we will never know about. But in Goldman we trust, one way or the other they always find a way to profit. Best of breed in a very lousy neighborhood. 10% year over year profit drop is nothing compared to peers in the financial world - heck that would be considered "high growth" to most.

• Goldman Sachs Group Inc., the world's largest investment bank, on Tuesday said second-quarter earnings fell about 10 percent, but still easily beat lowered Wall Street expectations on higher fees from asset management and stock underwriting.
• The company reported a profit of $2.05 billion, or $4.58 per share, for the three months ended May 30 compared to $2.29 billion, or $4.93 per share a year earlier. Revenue fell 7 percent to $9.42 billion from $10.18 billion a year earlier. The latest results easily surpassed Wall Street expectations for a profit of $3.42 per share on $8.74 billion of revenue
  
• Goldman benefited from a $725 million gain during the quarter from its own investments, including a $214 million gain from its stake in Industrial and Commercial Bank of China Ltd. Revenue for all of Goldman's trading and principal investments fell 16 percent to $5.59 billion.
• But, it wasn't entirely smooth sailing for the investment bank, which had $775 million of write-downs from credit market losses. That caused revenue from its fixed-income business to fall 29 percent versus a year ago.
• The higher price of energy and other commodities pushed that business "to a near record," Viniar said. Goldman does not break out how much its commodities business made.
• Equity underwriting produced quarterly net revenues of $616 million, its second best quarter and highest in eight years. Securities services -- which includes the firm's prime brokerage business -- posted record quarter revenue of $985 million. (these are the types of businesses that I am sure they are taking away from their weakened competitors)
• Goldman reported that revenue from its investment banking business fell 2 percent to $1.69 billion. However, its financial advisory business posted revenue of $800 million -- 13 percent higher due to robust trading during the quarter.
• Revenue from Goldman's asset management business surge 18 percent to $2.15 billion. Goldman said the increase was due to "market appreciation in equity assets' and inflows into money market and fixed-income products.
• Rumors that the firm was preparing big writedowns to leveraged loans hit the stock last week, but the losses did not materialize. Reports did surface on Tuesday that the firm is close to bailing out a $7 billion structured investment vehicle, or SIV, which may have weighed on the stock. The SIV was run by British hedge fund Cheyne Capital.
• Richard Bove, analyst at Ladenburg Thalmann, said earlier today on CNBC that Goldman "may be the only firm in the world that really understands risk." Explaining his statement to TheStreet.com, Bove said Goldman spends more on its computer systems, has more historical data and dedicates more resources to the task of creating and analyzing computer models that assess risk. "They've got more IT people than they do traders," he said. (risk - what a concept; it's been long lost in the greed of the US financial system)

Well now we hope Morgan Stanley (MS) which reports today falls somewhere between Goldman Sachs (GS) and Lehman Brothers (LEH); hopefully landing a lot closer to Goldman.

Long Goldman Sachs, Morgan Stanley in fund; no personal position