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Goldman Sachs posts $2.1 billion loss
Venerated Wall Street firm slips into the red for the first time since going public in 1999; loss bigger than expected.
By David Ellis, CNNMoney.com staff writer
Last Updated: December 16, 2008
NEW YORK (CNNMoney.com) -- Goldman Sachs suffered its first loss as a publicly traded company Tuesday, serving as yet another reminder that no corner of Wall Street has escaped the ongoing financial crisis.
The once-revered investment bank said it lost $2.1 billion, or $4.97 a share during the fourth quarter, representing the company's first loss since it went public in 1999. A year ago, Goldman reported a profit of $3.2 billion, or $7.49 a share.
Few analysts were expecting the company to maintain its impressive run given the recent market turmoil in the credit and stock markets and the upheaval in the nation's financial services sector.
Still, the results were worse than expected. Consensus estimates were for a loss of $1.63 billion, or $3.73 a share for the quarter, according to Thomson Reuters.
Lloyd Blankfein, Goldman Sachs' chairman and CEO, blamed the company's performance on tough market conditions.
"Our results for the fourth quarter reflect extraordinarily difficult operating conditions, including a sharp decline in values across virtually every asset class," he said in a statement.
Investors, however, were encouraged by the news. Shares of Goldman Sachs (GS, Fortune 500), which have lost 69% of their value so far this year, rose 4% in pre-market trading Tuesday.
A possible reason for the optimism was the fact that the company remained well capitalized.
The company's Tier 1 capital ratio, a key measure of a bank's ability to absorb losses was 15.6% at the end of the quarter, up from 11.6% in the previous quarter. A bank with a capital ratio above 8% is considered well capitalized.
Goldman Sachs raised nearly $21 billion in capital during the fourth quarter. It sold $5.75 billion in common stock and an additional $5 billion in preferred shares to Warren Buffett's Berkshire Hathaway (BRKA, Fortune 500).
The Treasury Department also injected $10 billion into the firm in October as part of the government's $700 billion bailout program.
The company, known for paying its employees handsomely, also revealed Tuesday that expenses related to compensation and benefits were nearly cut in half during the quarter from a year ago. Blankfein and six other Goldman executives opted to forgo annual bonuses this year.
And in late October, the company moved to cut 10% of its workforce, or about 3,260 jobs.
Still, all this cost cutting was not enough to completely insulate Goldman from the tumult in the markets. One of the areas hit hardest in the latest quarter was the company's principal investment division business, which suffered a $3.6 billion loss during the quarter.
That included a $631 million hit related to its investment in Chinese banking giant Industrial and Commercial Bank of China, whose shares have lost a third of their value through November.
Also taking a hit was Goldman's fixed-income division, which included a $700 million loss due to commercial real estate loans.
Its investment banking business didn't fare much better. Revenues across that division fell nearly 50% from a year ago due to a big drop in merger activity and stock and debt offerings.
Rival Morgan Stanley (MS, Fortune 500) is also expected to report a loss for the quarter when it delivers its results Wednesday.
First Published: December 16, 2008
Goldman Sachs posts $2.1 billion loss
Venerated Wall Street firm slips into the red for the first time since going public in 1999; loss bigger than expected.
By David Ellis, CNNMoney.com staff writer
Last Updated: December 16, 2008
NEW YORK (CNNMoney.com) -- Goldman Sachs suffered its first loss as a publicly traded company Tuesday, serving as yet another reminder that no corner of Wall Street has escaped the ongoing financial crisis.
The once-revered investment bank said it lost $2.1 billion, or $4.97 a share during the fourth quarter, representing the company's first loss since it went public in 1999. A year ago, Goldman reported a profit of $3.2 billion, or $7.49 a share.
Few analysts were expecting the company to maintain its impressive run given the recent market turmoil in the credit and stock markets and the upheaval in the nation's financial services sector.
Still, the results were worse than expected. Consensus estimates were for a loss of $1.63 billion, or $3.73 a share for the quarter, according to Thomson Reuters.
Lloyd Blankfein, Goldman Sachs' chairman and CEO, blamed the company's performance on tough market conditions.
"Our results for the fourth quarter reflect extraordinarily difficult operating conditions, including a sharp decline in values across virtually every asset class," he said in a statement.
Investors, however, were encouraged by the news. Shares of Goldman Sachs (GS, Fortune 500), which have lost 69% of their value so far this year, rose 4% in pre-market trading Tuesday.
A possible reason for the optimism was the fact that the company remained well capitalized.
The company's Tier 1 capital ratio, a key measure of a bank's ability to absorb losses was 15.6% at the end of the quarter, up from 11.6% in the previous quarter. A bank with a capital ratio above 8% is considered well capitalized.
Goldman Sachs raised nearly $21 billion in capital during the fourth quarter. It sold $5.75 billion in common stock and an additional $5 billion in preferred shares to Warren Buffett's Berkshire Hathaway (BRKA, Fortune 500).
The Treasury Department also injected $10 billion into the firm in October as part of the government's $700 billion bailout program.
The company, known for paying its employees handsomely, also revealed Tuesday that expenses related to compensation and benefits were nearly cut in half during the quarter from a year ago. Blankfein and six other Goldman executives opted to forgo annual bonuses this year.
And in late October, the company moved to cut 10% of its workforce, or about 3,260 jobs.
Still, all this cost cutting was not enough to completely insulate Goldman from the tumult in the markets. One of the areas hit hardest in the latest quarter was the company's principal investment division business, which suffered a $3.6 billion loss during the quarter.
That included a $631 million hit related to its investment in Chinese banking giant Industrial and Commercial Bank of China, whose shares have lost a third of their value through November.
Also taking a hit was Goldman's fixed-income division, which included a $700 million loss due to commercial real estate loans.
Its investment banking business didn't fare much better. Revenues across that division fell nearly 50% from a year ago due to a big drop in merger activity and stock and debt offerings.
Rival Morgan Stanley (MS, Fortune 500) is also expected to report a loss for the quarter when it delivers its results Wednesday.
First Published: December 16, 2008
