Tuesday, September 16, 2008

GS Q3 08 earnings release 9/16/2008

For the third quarter Goldman Sach's posted eps of $1.81 per share compared with $6.13 per share for the third quarter of fiscal year 2007. The mean street estimate was $1.72 and GS easily beat these expectations however, increased uncertaintly concerning investment banks led the stock down over 5% on the day to a price of $133.01 per share at the close. Some highlights from the earnings release were securities services posted it's second best net quarterly net revenue in history to the tune of $916 million. GS is also the number one world-wide in announced and completed mergers and acquisitions despite decreases in revenue from financial advisory. Other than asset management and securities services, the rest of Goldman Sach's businesses deteriorated throughout the quarter however, relative to their peers, have been able to maintain profitability.

The en vogue question from analysts during the conference call was the potential for GS to merge with a commercial bank in order to increase it's capital base. The response by David Viniar was one of certainty that the company would not merge with a commercial bank in the near future. He added that even if they did merge, the frm could not use these deposits in order to fund their core businesses. Goldman Sachs continues to prove that they are the superior risk managers in the field of pure investment banks. Witnessing the history of the "universal bank" within the United States I do not believe that it is necessary for GS to merge with a larger institution. If anything, we are seeing true darwinism within the industry and it looks like only the most fit banks will survive. I personally believe GS is one of those companies and could benefit moving forward with increased purchasing power due to the lack of a number of viable competitors. I believe that we should hold onto this stock and upon further investigation, look into building our position further after the recent events in the financial markets settle somewhat.


shobha said...

Given the earnings/cash flow decreases, what does this do to our estimates of GS intrinsic value? Seems compelling to me that GS *may* be in a good competitive position long term, but some of its present competitors are simply losing their independence and gaining well-endowed parents, not vanishing. Assuming you'd recommend adding to the position, is there a specific price target in mind? No need for a direct or immediate answer, just food for thought. (D. Smith)

UASBIG said...

Another area to think about, has the model changed. can a firm that borrows short term and lends long term survive in a less liquid market? (G. Jacobson)