Goldman Sachs Earnings Preview: Expected To Post Huge Gain In Fourth-Quarter, Full-Year Results On Cost Cutting, Investment Banking

Goldman Sachs Group Inc. (NYSE:GS) is expected to post an 81 percent increase in net income for the fourth quarter of last year on stronger investment banking and continued expense controls. Its full-year gain is expected to be even greater.

The New York-based money center bank, which will report Wednesday before the market opens, is expected to post net income of $1.78 billion, or $3.70 per share (EPS), on revenue of $7.91 billion, according to a survey of analysts conducted by Thomson Reuters.

Goldman has used the fourth quarter to divest assets in the developed world, where growth prospects appear less appealing than those in emerging markets.

In September the Carlyle Group LP said it would buy Goldman’s North American power generation assets held by Cogentrix Energy LLC, which include five coal and solar power projects in Virginia, Florida, California and Colorado. The deal also includes a development pipeline of gas and renewable power projects.

In November, Canada's Onex Corp. announced it was part of a group that would buy USI Insurance Services, which provides insurance brokerage services in the U.S., from Goldman Sachs in a $2.3 billion deal that included $1.6 billion in debt.

Also in November, Goldman announced that an Australian affiliate had launched an investment fund that aims to attract funds from Chinese. Specifically, the Australia Capital Investment Fund aims to be a means whereby non-Australians can respond to the government's decision to let families investing at least $5 million in Australian assets like government debt and some mutual funds gain residency.

“It is pretty clear that there's going to be better economic growth in some of the growth markets than in some of the developed markets, and so those are places where we will continue to invest,” David Viniar, the bank’s chief financial officer, said in an Oct. 16 conference call.

The bank’s brokerage business is expected to have contributed to a strong fourth-quarter.

“The fourth quarter 2012 likely came in better than expected for the brokers, given the bounce in stocks in December, and the strong corporate high-grade and high-yield credit issuance we saw through the last three months of the year,” said Brian Gilmartin of Seeking Alpha. “High-yield credit issuance was thought to be stronger than high-grade for the last quarter, and that is higher-margin business.”

Goldman Sachs staff cuts during the fourth quarter contributed to the decision by Susquehanna to upgrade the bank's shares to buy. In November, for example, Goldman Sachs told the Securities and Exchange Commission that it had pared its list of partners by 31.

Besides cutting staff, the bank also sought to compete with rivals on a cost basis.

"We are much more focused today on operations and technology and being a low-cost provider than we would have articulated about ourselves 10 or 15 years ago," CEO Lloyd Blankfein said at a November conference in New York.

Shares rose 21 percent during the final three-month period of last year, from $105.72 to $127.56.

For all of 2012, analyst expect Goldman Sachs to post net income of $6.16 billion – a 145 percent gain – or EPS of $12.14 on revenue of $36.64 billion.