Goldman Sachs Group, Inc. (NYSE:GS) reported 3Q12 EPS this morning of $2.85, modestly beating the street-high $2.75 estimate. The roughly $600 million top-line beat came from investing and lending primarily (dominated by equity securities marks in that segment), and secondarily in Institutional Client Services (with slight beats in FICC and equities). Investing & Lending revenues came in at $1.80b, above analysts’ forecast of $1.36b, with gains from debt securities ($558m) the primary driver of the differential relative to consensus expectations.  Adjusting for $370 million of DVA, FICC core revenues increased 12% sequentially versus  5% forecasts, and equities rose 24% . Rounding out the top line, investment banking fell slightly short of forecasts in the underwriting components (advisory was about in-line).

 Goldman Sachs Logo

Investment Banking slightly better than expected. Goldman Sachs Group, Inc. (NYSE:GS) reported investment banking revenues of $1.16b vs.  forecasts of $1.08b. 3Q revenues were up 49% YOY though down 3% sequentially. Compared to estimates, the beat was driven by better than expected results in advisory ($509m vs. estimates of $459m) and debt underwriting ($466m vs. $397m estimates), partially offset by lower than expected equity underwriting ($189m vs. $228m forecasts).

Investment management revenues of $1.20b slightly above estimates of $1.19b.

The less volatile investment management segment came in-line with forecasts. Higher expenses  consumed about 75% of the revenue beat, a relationship that seems a bit high. Importantly, though, the comp ratio came in at 44%, consistent with 1Q and 2Q and analysts’ forecasts.

With respect to the balance sheet, the company continues to sit on near record-high levels of liquidity ($170 billion at the end of this quarter). The company repurchased 11.8 million shares for $1.25 billion (with 34 million shares remaining on its authorization) during the 3Q. This is a reasonably active pace of buybacks, even though somewhat below the $1.5 billion Goldman Sachs Group, Inc. (NYSE:GS) repurchased in the 2Q and below the $1.6 billion what most analysts had modeled for this quarter. GS also raised its dividend to $0.50 per quarter from $0.46 previously. ROE for the 3Q came in at 8.6%, but backing out the negative DVA impact, core ROE was closer to 10%.

Barclays Capital notes that on the $140.58 ending book value per share in the 3Q, the shares are trading at 0.9 X P/B.  The ROE run rate is likely still below the company’s cost of capital.

 

Disclosure: No position