Goldman Sachs' net surges on investment banking

NEW YORK (AP) - Goldman Sachs went some way to restoring its reputation as a Wall Street powerhouse after its earnings almost tripled in the fourth quarter, handily beating analysts' estimates, as investment banking revenues surged.

The investment bank earned $2.83 billion after paying preferred dividends, compared with $978 million a year earlier in the period ending Dec. 31, 2012.

The bank's debt underwriting business profited from a rally in bonds and a surge in demand for debt securities. Goldman's debt underwriting business earned $1.96 billion in revenues for the year, its second-best annual performance and the highest since 2007. An increase in stock underwriting also helped boost revenues.

"The fourth quarter reminds us a little of the old days and should give investors confidence in Goldman's future earnings power," Glenn Schorr, an analyst at Nomura, wrote in note to clients.

Goldman's stock jumped $5.50 to $141.09, its biggest one-day advance in ten months. The bank's stock has returned 45 percent in the past 12 months.

Analysts were encouraged that revenue growth of 53 percent for the year outpaced a small increase in employee compensation, helping the bank boost its profit margins. Paying employees is Goldman's biggest single cost, accounting for more than half of its total operating expenses.

The bank's employee compensation costs rose 6 percent to $12.94 billion for 2012. The bank also reduced its headcount by 3 percent to 32,400. That means that the average employee at the bank earns almost $400,000 a year.

"While economic conditions remained challenging for much of the last year, the strengths of our business model and client franchise, coupled with our focus on disciplined management, delivered solid performance for our shareholders," Goldman's CEO Lloyd Blankfein said in a statement Wednesday.

Goldman differs from other big U.S. banks because it deals almost exclusively with institutions, rather than consumers. Its clients are usually mutual funds, international corporations, other banks and similar firms.

Revenue for the fourth quarter rose to $9.24 billion, 53 percent higher than in the same period a year ago, beating analysts' estimates of $7.97 billion.

Goldman earned $5.60 on a per-share basis, compared with the average analysts forecast of $3.71, according to data provider FactSet.

The Federal Reserve announced today that Goldman has agreed to pay $330 million to settle federal complaints that it wrongfully foreclosed on homeowners who should have been allowed to stay in their homes.

The agreement was similar to deals struck earlier this month with 10 other major banks and mortgage lenders. The money will be used to pay compensation to homeowners, to reduce mortgage balances and to forgive outstanding principal on home sales that generated less than borrowers owed on their mortgages.

Upcoming Events