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Tuesday, September 12, 2006

Breaking Down the Goldman Sachs Earnings

Goldman Sachs (GS) posted $7.47 Billion revenues and posted EPS of $3.45 compared to consensus estimates of $3.10 EPS and $7.165 Billion. After non-cash items the company had net EPS of $3.26 in the quarter.

The initial reaction is a $3.51 pop,, or 2.3%, to $154.21 pre-market.

Longer-term investors are probably having a sigh of relief as the brokerage firm stocks seem to always exceed estimates by a decent clip, yet tend to sell off on the news. Maybe this time will different and maybe it won't. The 52-week trading range is $110.23 to $169.31.

As a reminder we have Lehman (LEH), Bear Stearns (BSC), and Morgan Stanley (MS) all reporting this week. Pre-market is treating the brokers ok with LEH up 1%, BSC not traded, and MS up 0.6%.

A note from the company: "We are pleased to be reporting the third best revenue quarter in our history," said Lloyd C. Blankfein, Chairman and Chief Executive
Officer. "This is particularly noteworthy given our record performance
for the first half of the year. While market conditions were more
challenging this quarter, our results underscore the strength and
depth of our client franchise."

Investment Banking revenues were $1.29 billion, up 27% year-over-year, but down 16% sequentially from Q2.

FICC revenues $2.74 Billion; up 4% year-over-year, although he company said the mortgage and commodities are in a tough market.

Equity revenues were $1.55 Billion, down 3% year-over-year.

Principal Investments revenues $430 million from two large gains.

Asset Management revenues $1.46 Billion, up 20% year-over-year, but down 10% sequentially from Q2.

Securities Services revenues of $537 million; up 13% year-over-year.

The company's operating expenses were $5.10 Billion; up 5% year-over-year, but down 22% sequentially from Q2.

The company set its dividend at $0.35 payable on November 20 for shareholders of record on October 23.

It goes without saying that brokerage firms tend to have spotty and highly variable earnings, and you can see where some areas have done better and some have not. Those investment banking revenues on a quarter to quarter basis fluctuate a lot, but this quarter seemed even spottier than others. It probably isn't fair to hone in one metric and the street is treating it well in the initial reaction, so we'll avoid being the voice of caution this morning.

Jon C. Ogg
September 12, 2006

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