Goldman Sachs Group Inc.'s fiscal first-quarter net income rose 20% as the banking giant recovered from its first quarterly loss since going public a decade ago in the prior quarter.
But the firm said it would sell $5 billion of common shares to raise money to repay government capital, in a move that will boost shares outstanding by about 8%. It also prorated its quarterly dividend to 35 cents a share. Goldman received $10 billion in October from the Treasury Department's Troubled Asset Relief Program, and its executives have suggested in recent weeks they would prefer to repay that money as soon as possible.
Shares fell 1.2% to $128.65 in recent after-hours trading, although the results far exceeded Wall Street's expectations.
Analysts and investors are closely watching the bank holding company's results, looking for an indication of how Wall Street is faring. This marks the first time Goldman and rival investment bank Morgan Stanley are reporting on their new fiscal calendar schedules, which they adopted after obtaining charters as bank holding companies in September.
While activity in the debt markets picked up in the first quarter, equity underwriting remained at depressed levels. Toxic assets, including mortgage-related securities and leveraged loans, continue to pose a risk of write-downs for investment banks.
Goldman said its fixed income, currency and commodities segment generated record quarterly net revenue of $6.56 billion, 34% higher than its previous record, reflecting strength in most businesses, including record results in interest-rate products and commodities.
"Given the difficult market conditions, we are pleased with this quarter's performance," said Chief Executive Lloyd C. Blankfein. "Our results reflect the strength and diversity of our client franchise, the resilience of our business model and the dedication and focus of our people."
For the period ended March 27, Goldman posted net income of $1.81 billion, or $3.39 a share, from $1.51 billion, or $3.23 a share, a year earlier.
Net revenue increased 13% to $9.43 billion.
Analysts surveyed by Thomson Reuters expected earnings of $1.60 and revenue of $7.09 billion.
Investment-banking revenue fell 30% as financial-advisory revenue dropped 21% on a decline in industry-wide completed mergers and acquisitions.
Until recently, Goldman had been known as having a magic touch after a correct bet that subprime mortgages would crater and its avoidance of other messes. But Goldman is facing danger from its heavy exposure to the stock markets, which have been extremely volatile in recent months, and its "book" of so-called distressed investments, which includes everything from troubled auto loans in Thailand to struggle golf courses in Japan.
After JPMorgan Chase & Co. (JPM) cut its dividend in February, a host of other banks followed suit and some analysts suggested such a move was imminent at Goldman.
The cost of protecting Goldman debt fell slightly after the bank released its quarterly earnings late Monday, according credit default swap, or CDS, risk premiums provided by PhoenixPartners. The CDS imply that it would cost an investor approximately $200,000 annually for five years to insure $10 million worth of debt. That's lower than the $225,000 seen before the results were announced.
