Bear Stearns & Goldman Sachs: Not All Earnings Blow-Outs (BSC, GS)

Bear Stearns (BSC-NYSE) $2.52 EPS net, but on an adjusted basis it is $3.40 EPS versus $3.50 estimate; Revenues were $2.51 Billion versus $2.33 Billion estimate.  The annualized return on common stockholders’ equity for the second quarter of 2007 was 11.6%, and 16.4% for the trailing 12-month period ended May 31, 2007.  Excluding the non-cash charge, annualized return on common stockholders’ equity for the second quarter of 2007 would have been 15.6%, and 17.5% for the trailing 12-month period ended May 31, 2007.  Bear Stearns is also putting together a fund to sell its troubled bonds and mortgage loans. Capital Markets net revenues for the second quarter of 2007 were $1.9 billion, down 10% from a record high of $2.1 billion for the quarter ended May 31, 2006.  Global Clearing Services net revenues were a record setting $317 million for the second quarter of 2007, up 10% from $287 million in the year-ago quarter. Wealth Management net revenues for the quarter ended May 31, 2007 reached a record $341 million, up 123% from $153 million in the second quarter of 2006.  EXPENSES: Compensation as a percentage of net revenues was 49.0% in the second quarter of 2007 as compared with 48.8% for the second quarter of 2006.

Goldman Sachs (GS-NYSE) just reported earnings at $4.93 EPS and revenues $10.18 Billion versus $4.79 EPS estimates and $10.15 Billion revenue estimates.  Investment Banking produced record quarterly net revenues of $1.72 billion and ended the quarter with its transaction backlog at a record level. Equities generated its second highest quarterly net revenues of $2.50 billion. Asset Management generated record management and other fees of $1.04 billion. Assets under management increased 28% from a year ago to a record $758 billion, with net asset inflows of $18 billion.  Securities Services achieved record net revenues of $757 million, 15% higher than its previous record.  Goldman Sachs also noted that outlook for the global economy remains strong and favorable market conditions and investor confidence continue to drive activity levels.  Net revenues in Trading and Principal Investments were $6.65 billion, 6% lower than the second quarter of 2006 and 29% lower than the first quarter of 2007.  This trading and investment revenues is always one of the biggest wildcards, and that appears to be part of the issie here.

Bear Stearns shares are trading down almost 2% at $146.50 in pre-market reactions to earnings, and Goldman Sachs shares are trading down about 2.5% at $227.50 after putting a new high yesterday.  On Bear Stearns it looks like the main culprit was the mortgage lending that helped to caused the miss; and Goldman Sachs appears that trading and investment revenues were part of the reason for not as large of a blow-out to estimates.

Jon C. Ogg
June 14, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.