Goldman Sachs Group Inc., the world's biggest securities firm by market value, said fiscal first-quarter profits set a record and exceeded analysts' highest estimates, on trading gains and investment-banking fees.
Net income in the quarter, which ended Feb. 23, climbed 29% from a year earlier, to $3.2 billion, or $6.67 a share, the New York company said Tuesday. The highest estimate of 16 analysts surveyed by Bloomberg had called for earnings of $5.60 a share.
Since closing at a record $220.94 on Feb. 20, shares of Goldman have dropped 8.3% amid concerns that higher interest rates will reduce the value of U.S. real estate and hurt the economy. Goldman is one of the lenders to New Century Financial Corp., the second-biggest U.S. provider of mortgages to people with bad credit histories. The Irvine, Calif., company said Monday that it does not have the cash to pay creditors.
More than 20 lenders have closed or put themselves up for sale as defaults on subprime mortgages climbed to a seven-year high, fanning concern that investment banks may sustain losses from the declining value of home loans and mortgage-backed securities.
"Although the subprime sector within the mortgage market experienced significant weakness, the broader credit environment remained strong," Goldman said.
Its profits beat expectations for a seventh straight quarter on record revenue from trading stocks and fixed income and advising companies on mergers, acquisitions, and bond sales. It reaped gains of more than $1.73 billion from investments, including its stakes in Chinese and Japanese banks.
"They beat estimates in just about every part of the business," said Andrew Corn, the chief executive officer of Clear Asset Management LLC in New York, which manages $100 million of assets.
Goldman's fiscal first-quarter net revenue climbed 22%, to $12.7 billion, compared with a 17% increase in operating expenses. The return on equity increased 1.6 percentage points from a year earlier, to 38%.
The firm reported record revenue from merger advisory, debt underwriting, equities trading, fixed-income trading, and asset management services.
"While market conditions will regularly shift, we are confident that our client-driven strategy will continue to produce the strongest results for the firm," Lloyd Blankfein, Goldman's chief executive officer, said in a press release.
Goldman is the first of four U.S. securities firms to report earnings this month. Analysts' estimates for Goldman ranged from $4.17 to $5.60 a share.
Lehman Brothers, the fourth-largest by market value, and Bear Stearns Cos., the fifth-biggest, are scheduled to report in the next two days, and Morgan Stanley, the second-largest, is scheduled to report next week. Merrill Lynch & Co. Inc.'s first quarter will end this month. All of the companies are based in New York.
Investment banking revenue at Goldman rose 17% as fees for advising on takeovers increased and income from underwriting stocks and bonds advanced.
Goldman, the world's No. 1 M&A adviser for the past five years, helped arrange $305 billion of takeovers completed during its fiscal first quarter, second only to Citigroup Inc. and up 45.9% from the same period a year earlier, according to data compiled by Bloomberg. Global share offerings managed by Goldman declined 31.6%, to $9.1 billion, according to the data.
Revenue from trading fixed income, currencies, and commodities, Goldman's biggest business, rose 20%, to $4.6 billion. Revenue from trading equities climbed 26%, to $3.1 billion.
