Goldman, Lehman Profit Up; Morgan Down
Wall Street stalwarts Goldman Sachs Group Inc. and Lehman Bros. Holdings Inc. posted higher earnings Thursday as bond trading and cost controls largely offset the dreary merger and stock underwriting business.
However, rival Morgan Stanley was unable to overcome disappointing trading results and restructuring costs for its retail brokerage business, which has suffered from weak individual investor trading activity.
The three firms wrapped up their fourth quarters at the end of November, along with Bear Stearns Cos., which posted a 23% increase in profit Wednesday.
Fixed-income trading was a bright spot as investors put their money into blue-chip bonds. But the top focus was cost reduction, and each firm cut jobs during the quarter to help boost profitability, as no one expects a quick turnaround.
“In the near term, we remain quite cautious about the environment,” Goldman Chief Financial Officer David Viniar said. “We can’t control the environment, only what we do.”
Goldman shares fell $3.40 to $70.30 in New York Stock Exchange trading, while Lehman shares fell 88 cents to $55.08 on the NYSE. Morgan Stanley’s stock dipped 80 cents to $40.30 in trading on the Big Board.
“The revenues [for Goldman and Morgan Stanley] were clearly the bad news,” said Mark Constant, an analyst at Lehman. “Principal transactions, investment banking and net interest income were disappointing for both companies.”
In addition to weak banking conditions, the three firms are embroiled in talks to settle charges of abusive business practices, which could lead to a combined $1 billion of industrywide fines in a settlement expected to be announced today.
Goldman reported net income of $505 million, or 98 cents a share, for the fourth quarter ended Nov. 29, compared with $497 million, or 93 cents a share, a year earlier.
Goldman edged the analysts’ average estimate of 96 cents a share by paying less in compensation and interest expense to partially offset a 34% decline in investment banking revenue.
Lehman reported net income of $243 million, or 91 cents a share, for the three months ended Nov. 30, up from $130 million, or 46 cents a share, a year earlier and above the consensus estimate of 88 cents.
In the latest quarter, Lehman took a one-time gain for an insurance claim related to the Sept. 11 attacks, but also took a $128-million charge to move its European headquarters.
Last year’s results included a $127-million Sept. 11-related charge.
Lehman’s bond trading revenue jumped from a year ago, when the Sept. 11 attacks disrupted business and displaced the company from its downtown New York headquarters.
Morgan Stanley reported fourth-quarter net income of $732 million, or 67 cents a share, compared with 78 cents a year earlier. Excluding a $235-million pretax restructuring charge for office space reductions and severance, the company said it earned $884 million, or 81 cents a share, in the latest quarter. The analysts’ average estimate was 74 cents.
The firm’s merger advisory revenue and underwriting revenue each fell 16%, while trading revenue fell 35%. The firm also closed 50 brokerage branches, leading to a $112-million charge.
“The results looked sloppy in key areas,” Merrill Lynch analyst Judah Kraushaar said in a research note, adding that trading results were disappointing.
Unlike Merrill Lynch & Co. and Credit Suisse First Boston, the firms reporting Thursday have avoided mass layoffs. But they have been trimming staff to cope with dwindling revenue. Goldman cut 4% of its staff in the quarter. Lehman shed 5%. Morgan Stanley cut 4% of its staff in the fourth quarter.
