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Goldman's net falls 72% after Buffett dividend

April 19, 2011

NEW YORK — Goldman Sachs took a hit to its first quarter earnings after paying dividends to billionaire investor Warren Buffett's company, which invested $5 billion in the bank at the height of the financial crisis in 2008.

The investment bank's first-quarter income fell 72 percent to $908 million after it paid $1.64 billion in dividends to Berkshire Hathaway Inc. Goldman Sachs Group Inc. said its revenue fell 7 percent to $11.9 billion on weakness in some of its core businesses including stock and bond trading and advising clients.

"In 2010, many of our clients' strategic and investment decisions were burdened by fears about the global economic outlook," Goldman Sachs' chief financial officer David Viniar told analysts in a conference call to discuss earnings.

Goldman's revenues from trading fixed-income investments, currencies and commodities for clients fell 28 percent, while revenue from advising on financial transactions fell 23 percent. Revenue from underwriting debt and stock offerings grew 23 percent.

The trends were comparable with those reported last week by two of Goldman's rivals, the investment banking divisions of JPMorgan Chase & Co. and Bank of America Corp.

Goldman usually outperforms its peers, and its first quarter results raised questions among analysts on a conference call with Goldman executives. Meredith Whitney, who runs a boutique investment advisory firm, seemed worried that Goldman was losing its edge. Whitney called the latest results "unexciting" and asked Viniar if the bank had any "transformative" strategic moves planned to help it outperform again.

"It's hard to give you a definitive answer," Viniar replied. Viniar said financial reform regulations are still being ironed out, which could affect how Goldman's business evolves.

Goldman's shares fell $1.92, or 1.25 percent, to close at $151.86 Tuesday.

Goldman will likely take another hit to earnings in the second quarter because it repaid Berkshire on April 18. Goldman's first-quarter income fell 72 percent to $908 million, or $1.56 per share, compared with $3.3 billion, or $5.59 a share in the first quarter of last year.

Buffett, who is CEO of Berkshire Hathaway Inc., helped shore up confidence in Goldman Sachs during the darkest period of the financial crisis by making a $5 billion investment in September 2008. In return, Berkshire received preferred shares which carried annual dividends of 10 percent. While Goldman Sachs has posted ever-widening profits since the crisis, it received permission only last month from the Federal Reserve to repay the investment.

Excluding the dividend payment, earnings per common share were $4.38, beating the $3.95 per share forecast of analysts surveyed by FactSet.

With its reputation for being the highest-paying institution on Wall Street, Goldman's compensation usually draws attention. In the first quarter, Goldman set aside $5.23 billion for compensation, down 5 percent from the same period last year. With a total employee count of 35,400, that works out to about $148,000 per employee in the first quarter.

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