Thursday, October 15, 2009

Goldman, Citi Temper Dow's Enthusiasm

While Goldman's earnings were better than expected, the stock has been unable to maintain its recent momentum. Although nearly anything impresses the equity market these days, beating earnings expectations when everyone is expecting you to beat earnings expectations is met with a ho hum reaction by investors. Go figure. Goldman posted a profit of $3.19 billion or $5.25 a share, up from $845 million or $1.81 a share a year ago. Revenues doubled to $12.37 billion. The best performing areas were the fixed income, currency and commodities trading group (once again, why on earth are investors and analysts not perturbed that the company lumps earnings from these units together?) and principal investments. Shocker that their principal investments rose when nearly every single asset class on the planet rallied in the third quarter. Little doubt, however, that these guys know how to make money when they are handed every opportunity on the planet by the federal government.

Citi, on the other hand, is still struggling under the weight of all of its bad lending and investment decisions during the credit bubble. The bank actually posted a profit, mostly due to an $851 million gain from its securities-exchange efforts in the quarter to convert the US government's preferred to common. Citi posted a profit of $101 million, compared with a year-earlier loss of $2.82 billion. If you include preferred dividends, which you should because that is cash out the door, the company lost 27 cents per share. Revenue rose 25% to $20.4 billion. One positive note is that cash and deposits jumped 17% during the quarter. However loans fell by 11%. Not good news for a weak economy that needs its banks to lend to spur growth. Just more evidence that the government's efforts to prop up the banks have only succeeded in propping up the market and banker's pay packages, and have not yet succeeded in feeding into the real economy.

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