Goldman Sachs 2Q12 Earnings: Waiting For The Cycle To Turn While Trading Below Book
[First appeared on Seeking Alpha on July 17, 2012]
Goldman Sachs' (GS) reported 2Q results that beat analyst expectations; however, it is facing a difficult operating environment as its clients are reducing their activity, including in the key areas of trading and M&A. The company reported 2Q ROE of 5.4%, which drew lots of questions from analysts since ROE at this level is below the company's cost of capital. As a result of the poor ROE and challenging environment Goldman Sachs continues to trade at a discount to tangible book value. Interestingly, while Goldman Sachs has been de-risking it repurchased more stock than many thought. The earnings report and conference call were less exciting for investors than the results of the other big banks that reported so far in 2Q 2012 earnings season [see our analyses of JPMorgan (JPM), Wells Fargo (WFC) and Citigroup (C)]. In this update we will look at the 2Q 2012 earnings results using our six question checklist and look for clues about performance in 2H 2012 and general economic conditions.