Goldman Sachs earnings stun

NEW YORK -- Goldman Sachs Group Inc. reported blockbuster earnings Tuesday, as a company that received government assistance just last year returned to profitability faster than many experts predicted.

The New York investment banking concern parlayed a big jump in securities-trading profits into second-quarter net income of $3.44 billion, or $4.93 cents a share. That easily surpassed analyst estimates of $3.65 a share.

Goldman's performance topped many of the most optimistic forecasts -- even surpassing the higher projections that some analysts made in recent days.

The results further cemented Goldman's reputation as Wall Street's premier investment banking company, especially at a moment when many of its rivals are hobbled by the aftermath of last year's financial crisis.

However, its profit also rekindled a debate about whether companies such as Goldman have benefited unduly from government bailouts even as American workers and consumers struggle with the lingering effects of the recession.

Goldman's results came largely from record trading profits in stock, bond and other securities.

Revenue from trading and principal investments surged to $10.8 billion, almost double the amount a year ago and 51 percent higher than in the first quarter.

Goldman benefited from the overall recovery in financial markets, the company's willingness to take on risk and reduced competition from other investment banks.

Companies across Wall Street have been helped in the past three months by a significant rebound in global stock and bond markets, which increases the value of securities on their books.

Beyond that, Goldman seized on the travails of rivals to strengthen its grasp in key markets, experts said. Bear Stearns Cos.

and Lehman Bros. Holdings collapsed during the financial maelstrom, while others such as Morgan Stanley have reduced their exposure to risky assets.

Goldman suffered fewer losses during the housing meltdown, giving it leeway to gain when financial conditions improved.

The bottom line, analysts said, is that Goldman was able and willing to take risks that others couldn't.

"There's been no better time to be in the risk-taking business because you can negotiate much better terms than you could at almost any point in the last decade," said Glen Capelo, bond trader and co-head of rates at Broadpoint Gleacher, a New York investment bank.

Still, the earnings renewed the debate about the effects of the federal government's bank bailout program known as the Troubled Asset Relief Program.

Goldman accepted $10 billion in TARP money last year and, even though it repaid the funds last month, it benefited from the bailout in other ways.

It was helped by a program in which the Federal Deposit Insurance Corp. guaranteed the debt of financial companies. And it was aided significantly by the government's bailout of troubled insurer American International Group Inc.

AIG guaranteed billions of dollars of Goldman's derivatives trades, and the government's rescue of the insurer helped Goldman avoid sizable losses had AIG instead defaulted on its obligations.

Goldman's earnings also threatened to reignite a controversy over executive pay.

The company set aside almost $6.7 billion for worker salaries and bonuses, almost 50 percent more than in last year's second quarter.

Through the first half of this year, Goldman has boosted its compensation reserves by a third from last year, to more than $11 billion.

Goldman shares inched up 22 cents to $149.66.