GS 2Q08 Earnings Recap

GOLDMAN SACHS 2Q08 Earnings Report Stats:

Beat ?: YES ! (reported $4.58/share vs. analysts' consensus of $3.42/share)

Profit--> down 11% to $2.09 Billion (from $2.33 Billion)
Sales --> down 7.5% to $9.42 Billion (from $10.2 Billion)

Sales By Business Unit:
A.) Trading and Principle Investments: net revs of 5.59 billion (down 16% yoy)
*Fixed Income, Currency + Commodities (FICC): net revs of $2.38 Billion (down 29% yoy)
*Equities: net revs of $2.49 Billion (unchanged yoy)
*Principle Investments: net revs of $725 million (down 8% yoy)

B.) Asset Management + Securities Services: net revs of $2.15 Billion (up 18% yoy)
*Asset Management: net revs of $1.16 Billion (up 10% yoy)
*Securities Services: net revs of $985 million (up 30% yoy)

C.) Investment Banking: net revs of $1.69 Billion (down 2% yoy)
*Financial Advistory: net revs of $800 million (up 13% yoy)
*Equity Underwriting: net revs of $616 million (up 72% yoy)
*Debt Underwriting: net revs of $269 million (down 59% yoy)

Other Highlights + Guidance:
*Marks the 12th straight quarter GS has exceeded analyst estimates
*Goldman Sachs currently ranks #1 WW in 2008's year to date announced Global M+A sales volume
*GS earned 57% of its 2Q08 revenues in the U.S. (43% overseas)
*GS's 'global core excess liquidity' (a pool of cash + liquid securities) increased to an avg of $88 Billion in the quarter from about $64 Billion in 1Q08
*Operating Expenses decreased by 2% yoy to $6.59 Billion
*Goldman reduced employee headcount by less than 1,000, or 1%, quarter over quarter to 31,495 during the quarter.

*The 29% drop in Fixed Income (FICC) revenues was negatively affected by $775 million worth of writedowns and credit market losses

*Assets Under Management --> Assets under management increased by $22 Billion to $895 Billion during the quarter ($16 Billion due to market appreciation and the remaining $6 Billion via new client inflows)

*Tax Rate --> Effective Tax Rate for 2Q08 was 26.3%, down from 29.5% for the first quarter of 2008 and 34.1% for fiscal year 2007 (the decreases in the tax rate were primarily due to changes in the geographic mix of earnings)...the lower than expected 2Q08 tax rate accounted for about 35 cents of GS's $1.16 earnings 'beat'...GS expects a fiscal 2008 annualized tax rate of around 27.7%

*Book Value --> Book Value Per Common Share was $97.49 and Tangible Book Value Per Common Share was $85.16, an increase of 5% and 6%, respectively, during the quarter

*Return On Equity --> The annualized return on average common shareholders' equity, a measure of how well the firm reinvests stockholders' money, was 20.4%, compared with 14.8% in 1Q08 and 26.7% in the second quarter of 2007.

*Buyback Program --> GS repurchased 1.2 million shares at an average cost per share of $173.85, for a total cost of $203 million during the quarter...remaining share authorization under the firm's existing buyback program is 62.4 million shares.

*Loan Committments (LBO Loans) --> At the end of 3Q07, the bank had $52 Billion worth of open LBO Financing Loan Commitments...GS has now brought that number down to $11 Billion

*Mortgage Related Assets --> Goldman ended 2Q08 with $15 Billion in Residential Mortgages (down from 1Q08's $20 Billion)...$8.5 Billion in Prime, $4.7 Billion in Alt-A and $1.8 Billion in Subprime mortgages...GS ended 2Q08 with $17 Billion in Commerical Mortgages (vs. 1Q08's $19.4 Billion)

*Leverage --> GS cut its Gross Leverage Ratio to 24.3 times in 2Q08 vs. 27.9 times in 1Q08...the 'adjusted' leverage ratio fell to 14.7 from 18.6 in 1Q08.

*Level 3 Assets --> GS's Level 3 Assets (those balance sheet assets which are the most illiquid and therefore most difficult to value/price) decreased from 8% of the firm's total assets to 7% during 2Q08 from 1Q08 (from $96 Billion to $78 Billion)

"...it’s pretty obvious that March was a really difficult period in the financial markets. And so the world has certainly improved since March. And I said again on a call before, someone asked me and I said, March was definitely the low point through now. I can’t tell you it’s going to be the low point going forward. But it certainly has been the low point through now." - Goldman Sachs CFO, David Viniar

"We are realistic about the market challenges we face, but times of market dislocation also produce opportunities, and we will continue to take advantage of the most attractive of these as they arise." - Goldman Sachs CEO, Lloyd Blankfein

Full Disclosure: I own shares of GS.