Earnings

Goldman Shines

Pull out your sunglasses. Goldman Sachs earnings report will blind you.

The world's largest securities firm by market value said net income rose to $3.22 billion, or $7.01 a share, in the quarter ended Nov. 30, from $3.15 billion, or $6.59 a share, a year earlier.

Net revenue rose 14 percent to $10.74 billion, though declining from even stronger results in the third quarter. The results capped a record year for the bank, which still generated a 33 percent return on equity despite the turmoil in credit markets and a slump in leveraged buyout activity, as Goldman escaped most of the bond market turmoil plaguing fellow brokers.

Analysts on average expected Goldman to earn $6.68 a share on $10.12 billion of revenue, according to Reuters Research.

There has been speculation in recent days that the bank's bonus pool includes a $70 million payout for Chief Executive Lloyd Blankfein, 20% more than his much-discussed $54 million take-home last year. Shares of Goldman are up 16% from December 2006 through the end of last month, the firm's fiscal 2007.

Goldman seems to get all the breaks. The Wall Street Journal last week reported the firm took a short position against the mortgage market, even as some divisions continued to sell mortgage-derivative-packed investments to firm clients, and generated nearly $4 billion in profit from that bearish bet. That would offset losses of $1.5 billion to $2 billion from mortgage-related investments.

"Goldman Sachs was a clear winner in 2007," writes Wachovia Securities analyst Douglas Sipkin. "Goldman Sachs will likely report a record year, while most of the competition has reported losses in the second half of 2007."

Rival banks were unable to get out of the way of their mortgage-related exposure, or unable to sell it fast enough. Merrill Lynch (nyse: MER - news - people ), Citigroup (nyse: C - news - people ), and UBS (nyse: UBS - news - people ) each have taken billions of dollars in write-downs. Lehman Brothers (nyse: LEH - news - people ), Bear Stearns (nyse: BSC - news - people ), Morgan Stanley (nyse: MS - news - people ), Bank of America (nyse: BAC - news - people ) and Wachovia have also taken write-downs, though their measures were not as drastic.

Deutsche Bank (nyse: DB - news - people ) analyst Michael Mayo estimated in November the write-downs by the banks could reach $130 billion when all is told, and that total losses from the subprime meltdown could approach $400 billion.

Most of the banks are talking about a rough fourth quarter and a treacherous 2008. "November was absolutely the worst month ever on record for the fixed-income markets," said Lehman Brothers Chief Financial Officer Erin Callan last week. "We expect it to be challenging for the better part of 2008, and we may see further valuation reductions from here."

Last week, Lehman, the largest U.S. underwriter of mortgage-backed bonds, took a $3.5 billion write-down in its positions, but managed to hedge its way out of most of that. Fourth-quarter profits were down 11%, to $870 million, from the same period in 2006.

Morgan Stanley is scheduled to report a fourth-quarter loss of 39 cents per share Wednesday, and Bear Stearns is expected to post a $1.79 per-share loss Thursday.

-- Reuters contributed to this report.