The Goldman Sachs Group, Inc. (NYSE: GS) is out with earnings this Wednesday. The investment banking giant, or the bank holding company with no real bank, managed to escape some of the worst fears that had been building in recent weeks and there is a healthy discount to book value now.

Fourth quarter net revenues were $6.05 billion, and net earnings were $1.01 billion or $1.84 EPS. The annualized return on equity was 5.8% for the fourth quarter.  Management talked about the year being dominated by global macro-economic concerns, impacted risk tolerance of clients, and other challenges.  Thomson Reuters had estimates of $1.24 EPS and 6.54 billion in revenues.

Here were the quarterly highlights by unit:

• Net revenues in Investment Banking were $857 million for the fourth quarter of 2011, 43% lower than the fourth quarter of 2010 and 10% higher than the third quarter of 2011.
• Net revenues in Institutional Client Services were $3.06 billion for the fourth quarter of 2011, 16% lower than the fourth quarter of 2010 and 25% lower than the third quarter of 2011.
• Net revenues in Investing & Lending were $872 million for the fourth quarter of 2011.
• Net revenues in Investment Management were $1.26 billion for the fourth quarter of 2011, 16% lower than the fourth quarter of 2010 and 3% higher than the third quarter of 2011.
• Compensation and benefits expenses (salaries, discretionary compensation, amortization of equity awards and other items such as benefits) were $12.22 billion for 2011, down 21% from 2010. The ratio of compensation and benefits to net revenues for 2011 was 42.4%. Total staff count was down 7% compared with the end of 2010.

The good news about this quarter is that the investment bank made money at a time when estimates were coming down extremely fast.  The bad news is that the quarter was far from an attractive one compared to normalized quarters.

Book value was $130.31 per common share and its tangible book value was $119.72 per common share. Unfortunately, book value in banking today is a ceiling rather than a floor.  Shares are indicated up 1.3% at $98.99 against a 52-week range of $84.27 to $171.49.

JON C. OGG

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