Goldman Sachs Group Inc., the Wall Street bank with the highest return on equity in 2013, reported earnings that topped analysts' estimates as investment-banking revenue jumped to the highest level since the financial crisis.
First-quarter net income fell 10 percent to $2.03 billion, or $4.02 a share, from $2.26 billion, or $4.29, a year earlier, the New York-based company said today in a statement. That beat the $3.49 average estimate of 25 analysts in a Bloomberg survey.
Chief Executive Officer Lloyd C. Blankfein, 59, is facing a slump in fixed-income trading, which fell for the fourth time in the past five quarters, as he seeks to boost return on equity. A jump in mergers and initial public offerings in the quarter suggests investment banking may be picking up.
"The quarter was cautiously promising, in the sense that you're seeing some good activity in underwriting, and mergers and acquisitions looks like it should be positioned for a good year, depending on what we see from CEO confidence," Kenneth Leon, an analyst who covers the financial industry for S&P Capital IQ, said before the results were announced.
Revenue declined 8 percent to $9.33 billion. Compensation, the firm's biggest expense, fell to $4.01 billion, or 43 percent of revenue, the same ratio as a year earlier.
Goldman Sachs climbed to $159.02 at 7:50 a.m. from $157.22 in New York trading yesterday. The shares dropped 7.6 percent in the first quarter, after climbing more than 38 percent in each of the past two years. They are still below their pre-crisis peak of $247.92 on Oct. 31, 2007.
First-quarter revenue from investment banking, the business run globally by Richard J. Gnodde, David M. Solomon and John S. Weinberg, climbed 13 percent to $1.78 billion. That compared with JPMorgan Chase & Co.'s $1.44 billion in investment-banking revenue and Bank of America Corp.'s $1.62 billion.
The figure included $682 million of financial-advisory revenue, including fees for takeover advice, an increase of 41 percent. Revenue from underwriting, a business led by Stephen M. Scherr, climbed 1 percent to $1.1 billion in the quarter, including $660 million from debt underwriting and $437 million for equity offerings.
Goldman Sachs held the top spot among arrangers of global equity, equity-linked and rights offerings in the first quarter, according to data compiled by Bloomberg. It ranked third in advising on announced mergers and acquisitions and fifth in underwriting U.S. bonds, the data show.
Fixed-income, currency and commodity trading revenue was $2.84 billion, down 13 percent from a year earlier, excluding an accounting adjustment. That compared with estimates of $2.59 billion from Sanford C. Bernstein & Co.'s Brad Hintz and $2.33 billion from Jason Goldberg at Barclays Plc.
Revenue from the equities division declined 18 percent from a year earlier to $1.6 billion, excluding accounting charges. That compared with Hintz's $1.79 billion estimate and Goldberg's $2.05 billion projection.
The division "experienced challenging market-making conditions, particularly in Japan and certain emerging markets as equity prices declined," Goldman Sachs said in the statement.
Total revenue from sales and trading, led by Pablo J. Salame, Isabelle Ealet and Ashok Varadhan, was $4.43 billion. That was below the $4.73 billion at Citigroup Inc. and $5.06 billion at JPMorgan.
Goldman Sachs posted its lowest trading profit since the financial crisis last year, less than a quarter of the $19 billion it earned in 2009. Larger banks have surpassed the firm in fixed-income trading revenue, where Goldman Sachs set a Wall Street record in 2009 as others struggled to recover from the financial crisis.
The firm has shuffled its trading ranks this year, promoting Varadhan, the 41-year-old chief of macro trading, as the third co-head of the securities division. The bank also named its heads of equity and credit trading -- Paul Russo and Michael Daffey, and Justin Gmelich, respectively -- to its management committee. It hired Kayhan Mirza from JPMorgan as global head of foreign-exchange trading, replacing Guy Saidenberg, who became co-head of the firm's commodities business.
Investing and Lending, which includes gains and losses on Goldman Sachs's own investments in stocks, debt, real estate, private equity and hedge funds, as well as loans, posted first- quarter revenue of $1.53 billion, down from $2.07 billion a year earlier.
Revenue from asset management rose 20 percent to $1.57 billion. Total assets under management climbed $41 billion during the quarter to $1.08 trillion, bringing the total increase to $183 billion in the past two years.
The firm has sought to entice investors through buybacks and dividends. Goldman Sachs returned $12.7 billion to shareholders in 2012 and 2013, more than the combined total of Citigroup, Bank of America and Morgan Stanley.
Over the next 12 months, Goldman Sachs won't get to give shareholders back as much capital as it originally planned. The firm had to cut its capital-return request to win approval from the Federal Reserve after its initial proposal pushed the company's leverage ratio below the required minimum.
The bank didn't say what the revised plan entails. Credit Suisse Group AG analysts including Christian Bolu and Ashley Serrao estimated Goldman Sachs will keep its 55-cent dividend constant and buy back $6 billion of stock through March, down from the previous 12-month period.
Morgan Stanley earlier today reported profit of $1.51 billion, beating analysts' estimates on a surprise jump in fixed-income trading revenue and higher equity-trading revenue than Goldman Sachs.
JPMorgan, the biggest U.S. bank by assets, posted earnings last week that missed analysts' estimates on lower revenue from fixed-income trading and mortgages. Bank of America yesterday swung to a surprise loss as the company booked $6 billion of costs tied to mortgage disputes.