By Saabira Chaudhuri
Goldman Sachs Group Inc.'s first-quarter net income fell 10%,
but results comfortably topped analysts' estimates, sending the
stock higher in premarket trading.
The New York investment bank saw a slump in trading that
overshadowed a drop in expenses. Still, the better than expected
results driven by strength in investment banking pushed shares
higher 1.1% in recent premarket trading.
Goldman posted net income of $2.03 billion, compared with
year-earlier net income of $2.26 billion. Earnings per
share--reflecting the payment of preferred dividends--were $4.02,
while revenue fell 7.6% to $9.33 billion. Analysts polled by
Thomson Reuters had expected per-share earnings of $3.45 on revenue
of $8.7 billion.
Goldman's results come as its executives continue to navigate a
difficult regulatory environment in which banks have been pushed
out of riskier businesses. Historically, Goldman has made much of
its profits taking calculated risks while brokering deals for
clients, a philosophy encapsulated by a former Goldman executive as
being "long-term greedy."
Goldman's FICC trading business, a crucial profit engine for
more than a decade, has faced headwinds similar to those buffeting
rivals. Fretting over turmoil in emerging markets, many investors
have pulled back from taking risks, analysts say. During the first
quarter, volumes fell in some markets tied to bonds and
interest-rate swaps while currencies turned less volatile, leaving
traders with fewer opportunities to profit from price
movements.
That was apparent in Goldman's first-quarter fixed-income
trading revenue, which fell 11% from a year earlier to $2.85
billion. Still, FICC revenue climbed 65% from the fourth
quarter.
The results come after rival Morgan Stanley earlier on Thursday
reported a surprise increase in FICC trading from a year earlier,
reflecting what the company said was a "strong performance in
commodities and solid results in credit and securitized products,
despite lower volumes across most fixed income businesses."
Total equities revenue at Goldman Sachs meanwhile, dropped 17%
from a year earlier to $1.6 billion.
Advisory revenue at Goldman Sachs was a relative brightspot,
rising 41% from a year earlier to $682 million.
Analysts at Credit Suisse recently said they expect Goldman
Sachs "to post its best first quarter M&A results post crisis,
significantly outperforming the broader industry."
Overall, investment banking revenue rose 13% from a year earlier
and 3.6% from the fourth quarter to $1.78 billion.
Goldman has attempted to counter its trading shortfall by
reducing expenses, including the amount it sets aside for
compensation. For the quarter, the bank's compensation and benefits
expense was down 7.6% from a year earlier and 83% from the fourth
quarter to $4 billion.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com
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