Goldman Performing Well, But Cyclical Headwinds Remain; Reiterate Hold

6/18 - "Goldman Sachs reported 2Q08 EPS of $4.58, beating our $3.44 estimate and the consensus of $3.42. The relative outperformance was driven by revenue strength (particularly in Investment Banking and Principal Investments) coupled with a lower than expected tax rate and non-compensation expenses."

"Management's tone remained cautious on the near-term operating environment. CFO David Viniar referenced a "challenging" current operating environment multiple times during the call. Actions like boosting the liquidity reserve, scaling back buybacks, and reducing leverage suggest that GS is preparing for a more sustained difficult revenue environment."

"Management joined the industry trend of deleveraging the balance sheet. Gross assets declined by 8% sequentially, bringing gross and net leverage ratios down from 29x and 19x to 24x and 15x, respectively."

"We are i...