Goldman’s Good Quarter, Firm Bows To Pressure On Compensation

Wall St. was disappointed by the quarterly report from Goldman Sachs Group (NYSE: GS) and its shares dropped 4%. The investment bank actually did remarkably well and nearly returned to pre-SEC investigation form when charges for the settlement were backed out.

Investors should be happy that Goldman moved beyond what could have been a very destructive period so quickly. The financial firm reported net revenues of $8.84 billion and net earnings of $613 million for its second quarter ended June 30, 2010. Diluted earnings per common share were $0.78 compared with $4.93 for the second quarter of 2009 and $5.59 for the first quarter of 2010. Annualized return on average common shareholders’ equity  was 7.9% for the second quarter of 2010 and 13.1% for the first half of 2010.

Excluding the impact of the $600 million related to the U.K. bank payroll tax and the $550 million related to the SEC settlement, diluted earnings per common share were $2.75  for the second quarter of 2010 and annualized ROE was 9.5%  for the second quarter of 2010 and 14.8% for the first half of 2010.

Goldman said that despite the $1.15 billion of additional expenses related to the U.K. bank payroll tax and the SEC settlement, book value per common share and tangible book value per common share each increased 1% during the quarter to $123.73 and $112.82, respectively.

Impressively, it held the No.1 position in global M&A for the first half.

Goldman appears to have bowed to pressure from shareholders, the government, and the press to racket down it compensation. The accrual for compensation and benefits expenses was $3.80 billion for the second quarter of 2010. The ratio of compensation and benefits to net revenues was 43.0% for the first half of 2010, down from 49.0% for the first half of 2009.

The beating of the firm is now over, and its business has already recovered–if it ever dropped off at all.

Douglas A. McIntyre