Goldman Sachs earnings easily surpass expectations

Goldman Sachs Group Inc. said Tuesday its second-quarter profit easily surpassed expectations as profit was buoyed by strength in its trading and underwriting businesses.

Long considered one of the strongest banks in the financial sector, analysts widely expected Goldman's profit to continue its rebound. Goldman posted a quarterly loss during the final quarter of 2008 amid the mushrooming credit crisis before returning to profitability in the first three months of 2009.

During the quarter ended June 26, the New York-based banking giant earned $2.72 billion, or $4.93 per share, after preferred stock dividends.

Goldman recorded a charge of 78 cents per share as it repaid the government's $10 billion investment in the bank as part of the Troubled Asset Relief Program. The bank had previously announced it would be taking the charge during the second quarter.

Goldman is the first bank to report second-quarter earnings, and analysts predict other banks' results may not be as strong. Others face greater loan losses because of their focus in retail banking, and their more conservative approach to business after the credit crisis could hinder a return to strong profits.

Bank of America Corp. and Citigroup Inc. have been among the hardest hit by loan losses and have yet to repay government bailout funds. JPMorgan Chase & Co. has repaid the government, but still remains saddled with rising consumer loan losses. All three banks report results later this week.

Goldman's results were even better than its fiscal second quarter last year. For that period, which ended May 30, Goldman reported a profit of $2.05 billion, or $4.58 per share. Goldman shifted its quarterly reporting periods after changing its regulatory structure to become a bank holding company last fall amid the deepening credit crunch.

Analysts polled by Thomson Reuters, on average, forecast earnings of $3.54 per share for the quarter on revenue of $10.66 billion.

Goldman's second-quarter net revenue totaled $13.76 billion. It generated $9.42 billion in revenue during its fiscal second quarter last year.

The bank reported a record $6.8 billion in revenue from fixed income, currency and commodities trading during the quarter. Particularly strong trading in credit and interest rate products and currencies help boost Goldman's fixed income, currency and commodities trading. Equities trading revenue totaled $3.18 billion during the quarter due in part to stronger trading in derivatives. It generated $811 million in revenue from principal investments.

After credit markets nearly shut down last fall, equity and debt markets began to recover during the spring as investors optimism for an economic recovery began to grow. During that recovery, companies that had been stretched for capital flooded equity and debt markets with new offerings to raise sorely needed cash.

Goldman was able to take advantage of that crush of offerings, generating record net revenue of $736 million from underwriting equity offerings during the quarter. Total underwriting revenue, which also includes underwriting debt offerings, totaled $1.07 billion during the quarter.

Goldman's profit would have been better had it not been for a charge taken to repay the government investment.

In early June, Goldman became one of the first banks to repay the government TARP funds it received. The government provided banks with capital in exchange for preferred stock and warrants to purchase common shares. The program was launched last fall after Lehman Brothers collapsed and insurer American International Group Inc. needed a government bailout to remain in business.

The government investment also included certain restrictions, such as caps on executive compensation.

Chafing at the restrictions, and with the cash available to repay the debt, Goldman paid the government the $10 billion to cover the loan. The warrants to purchase common shares, however, remain outstanding.

Wholesale prices, retail sales rise in June

Higher energy prices rippled through the economy in June, helping to drive a bigger-than-expected gain in retail sales.

The sharp rise in wholesale prices — as well as "core" prices that exclude food and energy — could fan investors' fears about inflation. Economists viewed the energy cost hikes as temporary and not the beginning of a dangerous bout of spiraling prices, but said consumers likely will remain cautious as the unemployment rates ticks up.

The 1.8 percent jump in the Producer Price Index, which tracks the costs of goods before they reach store shelves, came after wholesale prices rose 0.2 percent in May, the Labor Department reported Tuesday. Last month's increase was double what economists expected.

"We don't expect to see these trends stick, especially with crude oil prices coming down," said Anika Khan, economist at Wells Fargo. "We don't see any inflation or deflation at this point."

Many analysts expect the increase in energy prices will be short-lived and that the weak economy will restrain companies from ratcheting up prices they charge consumers.

Retail sales rose 0.6 percent last month, due mainly to higher gas prices and auto sales, the Commerce Department said Tuesday.

Still, the second straight increase in retail sales may be a sign that the economy is on the verge of a rebound. Americans spending more for the rest of this year should help end the longest recession since World War II, but economists maintain that any recovery will be slow.

Over the past 12 months, wholesale prices have actually fallen 4.6 percent.

Stripping out volatile food and energy prices, all other prices rose a bigger-than-expected 0.5 percent in June, the most since October. In May, the core prices dipped 0.1 percent. Economists expect a bump-up in core prices of just 0.1 percent last month.

For the 12 months ending in June, core prices rose 3.3 percent.

In June, energy prices jumped 6.6 percent. Gasoline prices increased 18.5 percent, home-heating oil 15.4 percent and liquefied petroleum gas, such as propane, went up 14.6 percent. All were the biggest increases since November 2007.

Crude oil prices topped $72 a barrel in June but have eased since then. Oil prices hit a record-high of $147 a barrel last July.

Food prices also rose sharply in June. They posted a 1.1 percent gain, after falling 1.6 percent in May.

A 21.8 percent jump in the price of vegetables led the way. Prices for eggs and young chickens also fed the increase in overall food prices as did a record 3.6 percent increase in the price of bottled carbonated soft drinks. The prior record price increase of 2.7 percent in that category came in January 1998.

Higher prices for cars, trucks, furniture and pharmaceutical preparations factored into the pickup in "core prices" in June. Economists blamed higher energy costs for spilling over and helping to push up the prices of other goods. They believe this will reverse as energy prices moderate.

To battle the recession, the Federal Reserve has slashed a key banking lending rate to a record low near zero. It is expected to hold the rate there through the rest of this year to help support the economy and because the central bank doesn't foresee inflation getting out of hand.

Fed Chairman Ben Bernanke and many private economists predict the recession will end later this year. However, they warn that the recovery will be slow. That means the unemployment rate, now at a 26-year high of 9.5 percent, will keep rising, probably hitting double-digits in the months ahead.

At the Fed's last meeting in late June, policymakers dropped concerns that the recession could trigger deflation — a destabilizing and prolonged bout of falling prices and wages.

Fed policymakers did acknowledge that energy and other commodity prices had risen. But they predicted that idle factories and the weak employment market would make it hard for companies to raise prices. The Fed said it expects inflation will "remain subdued for some time."

Identity thieves target job seekers

Never mind landing the job. Now people on the lookout for employment have another cause for worry: identity theft. As the joblessness rate soars, scammers are ginning up fake Web sites or posing as recruiters to trick job seekers into giving up sensitive personal information.

Corneilus Allison became a potential target after he applied for a position at Aetna (aet.) in January, court documents show. In hopes of securing a position at the insurer, he entered required personal information into Aetna's job Web site. In May he received a response -- but it wasn't an offer of employment. Aetna instead told him that his personal information, including his Social Security number, might have been compromised. Hackers had found their way into Aetna's job application site, managed by an outside vendor, nabbed e-mail addresses of job seekers, and sent correspondence as if from Aetna asking for additional personal information.

A lot of people, many of them unemployed and eager to divulge information they believe will land them a job, are the target of similar scams. "The job-seeker market has slowly but surely been invaded by scammers," says Jay Foley, executive director of the Identity Theft Resource Center.

Cybercriminals have for years built fake sites purporting to be PayPal (NasdaqGS:EBAY - News) or other financial-services firms to dupe Web surfers into giving up data that can in turn be used to defraud. Scammers now appear to be using false job-listing sites more frequently, security experts say. In the U.K., the number of fake job ads rose more than fourfold over the last three years, according to a report released in September by APACS, a U.K. trade association for payments.

Aetna's Breach Sparks a Class Action

In some cases, scam artists sell data on legitimate job seekers to people who lack credentials -- say, illegal residents -- who need the data to land jobs. Of the roughly 313,000 cases of consumers registering complaints of identity theft to the U.S. Federal Trade Commission in 2008, about 15% said thieves had perpetrated employment-related fraud with their stolen identities, according to a February 2009 report by the commission. That's up from 14% of 259,266 identity-theft complaints in 2007.

After Aetna discovered the breach in early May, the company contacted 65,000 job applicants whose e-mails were swiped and offered free credit counseling. About a month later, Allison sued in a class action, accusing Aetna of negligence, breach of implied contract, and invasion of privacy. "Aetna did the right thing by proactively notifying people about this incident and offering free credit monitoring," Aetna spokeswoman Cynthia Michener writes in an e-mailed statement. "It's unfortunate that we're being sued for acting with integrity and honesty." Aetna asked the court to dismiss the lawsuit, calling it meritless. Allison's legal counsel didn't respond to a request for comment. Contact information for Allison couldn't immediately be obtained.

In another popular scam, perpetrators pose as recruiters ready to extend an offer who request Social Security numbers or other personal information to do background checks. "We've even heard cases of fraudsters posing as potential employers, asking for bank account numbers," says Jeremy Miller, director of operations at Kroll's Fraud Solutions Practice. "They're using the fact that a person is looking for a job and has that need, and counting on the fact that they'll do anything to get that job."

A Spike in Craigslist Fraud

It's unclear how many identities are stolen through the job-application process, but ID theft in general is growing. The number of identity-fraud victims reached 9.9 million in 2008, a jump of 22% over 2007, according to the 2009 Identity Fraud Survey Report released in February by consulting firm Javelin Strategy & Research. Economic misfortune may be a contributor to the increase, since higher rates of fraud have historically occurred when the economy worsens, the report says.

On June 11, Colorado Attorney General John Suthers warned consumers of a spike in reported cases of fraudulent job listings on Craigslist and other popular job-search Web sites. In one posting, a foreign company seeks a U.S. resident to handle transactions. The employee would process payments through a U.S. bank and then wire money to his or her new employer. The payment checks are fake, but the victim wouldn't discover that until after wiring money abroad -- and being left holding the bag.

Experts recommend that job seekers take care with personal information, particularly Social Security numbers, and not put it on resumes. Foley recommends using particular caution if a recruiter contacts a job seeker out of the blue, when they didn't apply for a position, and asks for sensitive information. It's a good idea to ask to call the recruiter back and then verify independently that he or she is indeed a representative of that company. Foley also says criminals have tried to harvest personal information from resumes on career sites. Some experts say it's best to send resumes directly to corporate sites.

"Job seekers are faxing and e-mailing and posting on sites where criminals are trying to attack," says William Morrow, chairman and CEO of CSIdentity, a company that offers identity-protection services. "Once you get a few pieces of someone's identity, it's helpful in getting the rest."

Stocks futures move up ahead of busy earnings week

Stock futures traded higher Monday morning as investors brace for a crush of earnings reports, including key readings from the banking sector, this week.

Futures have moved higher throughout the morning as European markets also gained strength after Asian markets tumbled overnight.

Investors have been cautious as they prepare for earnings reports this week, including from some of the nation's largest financial firms. Banks have been among the hardest hit companies since the recession began in late 2007 as investment and loan losses piled up.

"People are focused on sectors battered the most to see if there is any bounceback," said Dan Deighan, founder of Deighan Financial Advisors in Melbourne, Fla. Financial firms and retail companies will probably be the most closely watched sectors as earnings reports are released, Deighan said.

The nation's largest banks — Goldman Sachs Group Inc., JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. — are all scheduled to report second-quarter results this week.

Commercial finance lender CIT Group Inc., meanwhile, said late Sunday it is talking with regulators about ways to improve its short-term liquidity as recent losses may jeopardize its compliance with capital requirements.

Earnings reports are also expected from major companies in non-financial industries as well this week, including Dow Jones industrial average components Johnson & Johnson, International Business Machines Corp. and General Electric Co. and technology bellwethers Intel Corp. and Google Inc.

The earnings results will give investors a chance to see if there was any meaningful economic improvement during the second quarter. But second-quarter results aren't expected to be stellar, so investors will instead focus on executives' "optimism or pessimism moving forward," Deighan said. Stocks rallied in the spring amid hope of an eventual recovery in late 2009. Investors want evidence that timetable will be met and corporate outlooks could provide it.

Ahead of the opening bell, Dow futures rose 53, or 0.7 percent, at 8,138. Standard & Poor's 500 index futures rose 7.20, or 0.8 percent, at 881.50, while Nasdaq 100 index futures rose 9.25, or 0.7 percent, at 1,425.25.

A host of economic data during the week will also provide some insight into the economy. Investors will get readings on inflation, retail sales, industrial production and housing starts throughout the week.

Last week, stocks continued a four-week slide as the Dow dropped to 8,147, its lowest level since April 28. Investors have been giving back some of the 40-percent gains picked up during a vigorous rally during the spring. Concerns have been mounting that the rally was overdone and investors are now waiting for fresh signs the economy is actually on the mend instead of just weakening at a slower pace.

Bond prices were mixed Monday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.28 percent from 3.30 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.18 percent from 0.16 percent late Friday.

The dollar was mostly lower against other major currencies, while gold prices fell.

Overseas, Japan's Nikkei stock average fell 2.6 percent. In afternoon trading, Britain's FTSE 100 rose 1.2 percent, Germany's DAX index gained 1.7 percent, and France's CAC-40 rose 1.5 percent.

Stocks open lower as earnings jitters increase

Stocks are falling as investor anxiety about earnings reports and what they'll say about the economy increases.

News that Chevron Corp.'s refining margins fell in the second quarter is adding to the market's unease. Oil prices have resumed their descent after a slight pop on Thursday, falling below $60 a barrel. That suggests there are worries about slack demand for oil.

Investors are looking past the Commerce Department's report that the U.S. trade deficit narrowed to $26 billion in May, the lowest level in more than nine years.

The market will also get a fresh reading on consumers' sentiment later Friday.

In the first few minutes of trading, the Dow Jones industrial average is down 45 to 8,137. The Standard & Poor's 500 index is down 4 to 878 and the Nasdaq composite index is down 3 at 1,748.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

The stock market headed toward a lower start Friday as investor anxiety about the economy increases.

Markets around the world pulled back as traders decided to sell amid the uncertainty about upcoming earnings reports and what they'll say about the economy. News that Chevron Corp.'s refining margins fell in the second quarter added to the uncertainty early Friday. Oil futures prices headed lower Friday with a key contract dipping below $60 a barrel.

The market looked past the Commerce Department's report that the U.S. trade deficit narrowed to $26 billion in May, the lowest level in more than nine years. Exports posted a small gain while the weak American economy pushed imports down for a 10th straight month.

But investors are nervous ahead of a fresh reading on consumers' sentiment during July, coming out Friday morning. The Reuters/University of Michigan index of consumer sentiment comes a day after the nation's retailers reported generally weak sales for June. The market is concerned that consumers, whose spending drives the economy, will keep cutting back as they worry about their job security.

Dow Jones industrial average futures were down 53, or 0.7 percent, at 8,081. Standard & Poor's 500 index futures were down 6.20, or 0.7 percent, at 872.70, while Nasdaq 100 index futures were down 8, or 0.6 percent, at 1,405.50.

Meanwhile, oil prices resumed their fall below $60 a barrel, down sharply from last week's highs. The drop in the price of crude has sent stocks falling as investors anticipate that a weaker world economy will mean less demand for energy.

A barrel of crude traded at $59.11, down $1.30, in pre-opening trading on the New York Mercantile Exchange.

Overseas, Japan's Nikkei stock average fell 0.04. In afternoon trading, Britain's FTSE 100 was down 0.7 percent, while Germany's DAX index and France's CAC-40 were down 0.6 percent.

Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.35 percent from 3.41 percent late Thursday. The yield on the three-month T-bill, considered one of the safest investments, rose to 0.18 percent from 0.17 percent late Thursday.

The dollar rose against other major currencies, while gold prices were down.