Goldman Sachs continued the buoyant trend among Wall Street banks yesterday, reporting record profits for the final quarter of its financial year, driven by a surge in fees from advising companies on takeover deals.
However, Goldman's shares slipped 1 per cent in morning trade in New York as investors who are accustomed to the blue-chip bank exceeding expectations were slightly underwhelmed. Goldman's 37 per cent rise in fourth-quarter profit to $1.63bn (£924m) was in line with analysts' expectations.
Another Wall Street heavyweight, Bear Stearns, recorded strong figures, saying fourth-quarter profits were up 15 per cent to $407m, due to a hefty increase in fees from trading shares and bonds for clients.
December's reporting season has been widely tipped as one of the best in years, due to companies' more bullish attitude to doing deals in recent months, which has led to fat fees for their investment bank advisers.
Lehman Brothers reported record earnings this week and Morgan Stanley is expected to unveil upbeat figures on Tuesday despite having been rocked by internal divisions this year.
As a result, bankers are looking forward to bumper Christmas bonuses. Morgan Stanley said on Wednesday it would pay its chief executive, John Mack, an $11.5m bonus in shares for the five months he has been with it.
Goldman's investment banking profits rose 23 per cent from last year, boosted by a 32 per cent rise in M&A fees on deals and a 14 per cent increase in securities underwriting. The firm has clinched the No 1 spot as M&A adviser for the fifth straight year. Goldman said its prospects for 2006 looked encouraging, noting its backlog of investment banking business booked but not completed rose "significantly" in the quarter.
Analysts expect 2006 to be another good year for Wall Street's banks and brokerages. Richard Bove, at Punk Ziegel, predicted a "20 to 25 per cent increase in M&A activity in 2006 compared to 2005".
Goldman's biggest business is trading and making long-term investments of its own money. The bank said quarterly net revenue in trading and proprietary investment surged 43 per cent to $4.1bn, fuelled by strong growth in bonds and derivatives, but offset by a decline from 2004 in commodities and currency trading revenue.
Brad Hintz, an analyst at Sanford Bernstein, predicted a "barn burner" fourth quarter for Goldman, but warned in a recent comment: "In 2006, we believe worsening domestic fixed-income market conditions will constrain" the firm's revenue.Reuse content