(Adds details and background, updates shares)
By Lauren Tara LaCapra and Tanya Agrawal
April 17 Goldman Sachs Group Inc reported
an 11 percent drop in quarterly profit as client activity
remained constrained and fixed-income revenue shrank, but both
earnings and revenue beat market estimates and the Wall Street
bank's shares rose.
Goldman said net income fell to $1.95 billion, or $4.02 per
share, in the first three months of the year from $2.19 billion,
or $4.29 per share, in the same period of 2013.
Analysts on average had expected earnings of $3.45 per
share, according to Thomson Reuters I/B/E/S.
Total net revenue fell 8 percent to $9.33 billion, but beat
the average estimate of $8.70 billion.
Goldman's shares, which had fallen more than 20 percent
since the start of the year to Wednesday's close, were up 1.9
percent at $160.28 before the opening bell.
"Investment Banking and Investment Management generated
solid results, while market sentiment shifted throughout the
quarter, constraining client activity in various parts of our
franchise," Chairman and Chief Executive Lloyd Blankfein said in
Most of Goldman's rivals also reported a drop in revenue
from fixed-income trading in the quarter, but Goldman has more
at stake than others because it has a less diverse business mix.
Goldman's revenue from fixed income, currency and
commodities (FICC) trading fell 11 percent from a year earlier
to $2.85 billion in the quarter ended March 31.
Fixed income investors have been holding off on trading in
the face of uncertainty about how quickly the U.S. Federal
Reserve will tighten monetary policy.
Goldman makes most of its money from trading and investing
in capital markets. This sets it apart from JPMorgan Chase & Co
, Citigroup Inc and Bank of America Corp,
which have big consumer lending businesses, and Morgan Stanley
, which has a large wealth-management arm.
The bank trades securities for clients, underwrites stocks
and bonds, advises on mergers and has an investment-management
business that caters to institutions and wealthy individuals.
It also has a merchant banking business that makes
investments and loans with its own money.
Earlier on Thursday, Morgan Stanley - Goldman's closest
rival - reported a 55 percent jump in first-quarter earnings as
higher revenue from its institutional securities business
augmented another strong quarter from wealth management.
Morgan Stanley said its FICC revenue increased 13 percent in
the quarter, making it the only big U.S. bank to increase income
from the fixed-income market in the quarter.
Goldman produced mixed results in other areas of the market.
Debt underwriting revenue fell 5 percent to $660 million due
to a decline in refinancing activity, which had driven earnings
for the past few years.
However, equity underwriting revenue rose 12 percent to $437
million as a slew of companies filed for initial public
Revenue in the company's investing and lending business fell
26 percent to $1.53 billion, reflecting the decline in
Investment management revenue rose 20 percent to $1.57
With business conditions remaining tough, Goldman has been
cutting costs, particularly compensation. Compensation expenses
fell 8 percent to $4.01 billion in the latest quarter while
total operating expenses dropped 6 percent to $6.31 billion.
But as the bank enters its fifth consecutive year of
declining revenue, Blankfein is facing pressure to explain how
Goldman will adapt and boost revenue.
Fixed-income trading once accounted for more than 40 percent
of Goldman's revenue on an annual basis. But since 2009 - when
markets flourished briefly in the aftermath of the financial
crisis - the business has declining almost steadily.
New rules have forced banks to hold more capital against
risky trades and limited their ability to trade for their own
books. A lack of risk-taking among clients across fixed-income
markets has also put a damper on results.
Analysts expect market volumes to eventually pick up, there
are questions about the long-term profit potential of
fixed-income trading businesses for Wall Street banks - a debate
dubbed "cyclical vs. secular."
Blankfein and other Goldman executives have steadfastly
maintained that the changes to trading - in terms of
regulations, client preferences and lower revenue - are
As weaker banks exit the business, Goldman will be able to
gain market share and raise prices, they have said.
(Reporting by Lauren Tara LaCapra in New York and Tanya Agrawal
in Bangalore; Editing by Ted Kerr)