Goldman earnings strong, Geithner upbeat

Wall Street’s largest surviving investment bank announced better-than-expected second quarter results, while sales at US retailers beat expectations with a 0.6% rise in June, boosted by a big jump in auto sales.

Both appeared to back up US treasury secretary Timothy Geithner, who said that a global assault on recession was making headway and acknowledged that Washington bore a special responsibility to help spur a recovery in the world economy.

Goldman Sachs Group Inc reported a 33% rise in earnings as a strong gain in trading was offset by a one-time charge to repay government loans.

“They’re terrific numbers...I think things are very fragile but they manage to make money in all environments which is what you’re supposed to do." said William Smith, chief executive of Smith Asset Management in New York.

“You’re going to see absolutely enormous numbers coming out of the money centres, including Citigroup," he added.

Goldman, the first major US bank to report quarterly earnings in the current cycle, saw its performance bolstered by improving markets and strong trading results.

But gains were tempered by a one-off $426 million charge related to the repayment of $10 billion in loans from the US. Treasury’s troubled asset relief program, known as TARP.

Fizzled Out

Stronger-than-expected first quarter results from financial companies sparked a rally in the sector which spread to the rest of the stock market. World stocks as measured by MSCI were up 1% by 1319 GMT.

The latest US retail sales figures were not all good. Excluding both autos and gasoline, sales were down 0.2%, the fourth consecutive monthly decline. Department stores and restaurants were among the laggards, suggesting that consumers remained reluctant to resume discretionary spending despite signs the recession may be drawing to a close.

In Europe, data on Tuesday showed that German investors have turned more pessimistic than expected, a signal analysts say means the nation’s economy won’t start growing until next year at least.

“The German economy could be among the first to escape the recession. However, it is ‘if’ and not ‘when’," added Carsten Brzeski, an economist at ING Financial Markets. “Cautious optimism, not enthusiasm, is most suitable for the way forward."

Euro zone industrial production was also a disappointment, growing only slightly in May after a bad April, and remaining 17% lower than it was a year earlier.

Officials and investors alike are on tenterhooks, waiting to see whether a tentative upturn in economic data in recent weeks means an eventual end to the worst downturn since the 1930s.

Many fear that it is merely a short-lived blip, sustained only by the trillions of dollars that governments around the world have poured into saving their banks and stimulating their economies — borrowed money that will take years to repay.

Note of Optimism

In Jeddah, Geithner struck an optimistic note. “The force of the global recession is receding," he said. “For the first time in several quarters, the IMF and a range of private analysts are starting to revise up their forecasts for growth in the second half of this year and next."

As he did in London on Monday, Geithner accepted the global economy faced severe problems but was reassuring so long as “steady, forceful and sustained" support continues until private investment and spending lead a recovery.

Data released in Europe showed at best a weak recovery. German analyst and investor sentiment fell in July for the first time since October 2008, a leading survey showed. The Mannheim-based ZEW economic think tank’s monthly poll of economic sentiment fell to 39.5 from 44.8 in June.

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