Goldman Sachs Group Inc. Earnings: Will Wall Street's Woes Continue?

Goldman Sachs (NYSE: GS  ) will release its quarterly report on Thursday, and shareholders are bracing themselves for what could be a sharp contraction in revenue and earnings for the Wall Street giant. With JPMorgan Chase (NYSE: JPM  ) having reported disappointing results, the question Goldman Sachs and rival Morgan Stanley (NYSE: MS  ) face is whether they can keep growing even in the increasingly tight regulatory environment facing banks right now.

For years, Goldman Sachs was among the top firms on Wall Street, with a sterling reputation for profit-making moves that helped both clients and the company's own interests. But the financial crisis changed the attitude that most people have about Goldman Sachs, especially amid allegations that the bank put its own profits ahead of the best interests of customers. Now Goldman Sachs is struggling to get back to its former growth glory. Let's take an early look at what's been happening with Goldman Sachs over the past quarter and what we're likely to see in its report.

Stats on Goldman Sachs

Analyst EPS Estimate

$3.44

Change From Year-Ago EPS

(20%)

Revenue Estimate

$8.70 billion

Change From Year-Ago Revenue

(13.8%)

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Can Goldman Sachs earnings keep surprising investors?
Analysts have had mixed views on Goldman Sachs earnings in recent months, slashing their first-quarter estimates by more than 10% but boost their full-year 2015 projections by almost 3%. The stock has tumbled, though, falling 12% since early January.

Goldman Sachs' fourth-quarter earnings report gave further evidence of the struggles that the banking sector has gone through recently. Goldman Sachs saw profit fall 21% from the year-ago quarter, with revenue falling 5%. Surprisingly, Goldman's investment-banking business fared quite well, with a 22% gain in profits. But poor results from client-trading and bond-underwriting hurt the stock, and investors were particularly nervous about the impact that higher interest rates could have on Goldman's future.

To avoid even steeper declines in revenue, Goldman Sachs has made the most of what has become an increasingly favorable mergers and acquisitions environment. With the value of M&A deals up 50% from this time last year, the bank has a powerful reputation that allows it to collect at least its fair share of advisory and transaction-based fees on these deals. That could help offset poor results from the fixed-income side of Goldman's business, which are likely to follow the lead of JPMorgan Chase and keep falling in this report.

Some investors still worry about Goldman Sachs and its capacity to weather a potential future financial crisis. In the latest round of stress tests from the Federal Reserve, Goldman Sachs received approval for its capital allocation plan, but the Fed had forced it to make revisions to the original capital submission. By contrast, plans from Morgan Stanley and JPMorgan Chase were approved without revision. While not automatically troubling in itself, the episode made shareholders wonder if Goldman Sachs overestimated its own financial health.

In the Goldman Sachs earnings report, watch to see if the company gives further guidance on its future capital actions. After its revised capital plan received Fed approval, a short statement expressed the flexibility of the Goldman Sachs plan, but it didn't reveal any details. With the possibility of higher dividends and greater share buybacks, the company could finally see its shares start moving back in the right direction.

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  • Report this Comment On May 07, 2014, at 8:31 PM, Hansen wrote:

    In 2000, the Standard & Poor 500 and NASDAQ Composite declined 50% and

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