Goldman Sachs Group's traders failed to capitalize on the fixed-income bonanza the rest of Wall Street generated last quarter, contributing to firmwide revenue that fell short of analysts' estimates and sending the shares down as much as 3.6%.
Fixed-income trading revenue declined 17%, the firm said in a statement Tuesday. Goldman was the only major Wall Street bank so far to have posted a drop for that business, even though the performance was the firm's third-best in the past decade. Equities-trading revenue beat expectations, helping to soften the blow.
The bank also offloaded a chunk of its roughly $4 billion Marcus loan book, which led to a $440 million reserve release. That firm's profit was higher than what analysts expected, but earnings were still down 19% from a year earlier. Net revenue included a loss of approximately $470 million related to the partial sale of the portfolio and the transfer of the remainder to held-for-sale status.
Shares of New York-based Goldman dropped 3.1% to $329.36 at 9:12 a.m. in New York. The stock had lost 1.1% this year through Monday, compared with 2.9% drop for the S&P 500 Financials Index. As of 10:05 a.m., shares had fallen slightly further to $328.91.
Most of the country's biggest banks have benefited from volatile markets that helped lift demand for trading services. Bank of America said earlier Tuesday that its fixed-income traders delivered a windfall: Trading revenue in that unit unexpectedly soared almost 30%, while analysts were expecting a small drop.
Retail-banking giants such as JPMorgan Chase and Wells Fargo last week delivered higher earnings off rising interest rates. One pocket of concern for big investment banks remains the muted activity in capital markets as companies seek to ride out volatility, which has depressed fees for firms including Goldman Sachs.
Investment-banking revenue of $1.58 billion was roughly in line with estimates and down 26% from a year earlier.
Goldman blamed its poor performance in fixed-income trading on the currencies and commodities business. The revenue figure for the same period last year was up more than 20%, which was its best fixed-income quarter in a decade.
The firm's provision for credit losses was a net benefit of $171 million for the first quarter, driven by the sale of the loan book. Analysts had expected that figure to have hurt profit to the tune of $828 million.
Goldman also took a hit of about $355 million related to its real estate investments.
The Wall Street giant's bankers and traders were involved in the failed attempt to help Silicon Valley Bank raise funds, a trigger for last month's US regional banking crisis. The firm's investment bankers were out in the market seeking to raise capital for the smaller bank, while also purchasing a securities portfolio from the beleaguered company at a steep discount.
"The events of the first quarter acted as another real-life stress test, demonstrating the resilience of Goldman Sachs and the nation's largest financial institutions," Goldman Chief Executive Officer David Solomon said in the statement.
The asset and wealth-management business, a key growth initiative for the firm, reported $3.22 billion in revenue, compared to analyst expectations of $3.8 billion. Much of the miss was tied to the revenue hit from the sale of the loan book, which was housed in the division. Equity investment gains were also lower than analysts had expected. Still, the unit posted a 24% increase from a year earlier, driven by gains in management fees.
A newly carved-out division called Platform Solutions — which houses credit card partnerships, transaction banking and the installment-lending business known as GreenSky — reported $306 million in pretax losses. The performance was significantly better than the $570 million estimated loss. That was largely driven by a lower provision for credit losses for the quarter.
Goldman said at its investor day in February that it's considering strategic alternatives for what's left of its consumer business, after mounting losses forced Solomon to backtrack on his goal of building out a giant business catering to the mass market.
Also in the first-quarter results:
- Net income dropped 19% to $3.09 billion.
- Companywide revenue totaled $12.2 billion, compared with an average estimate of $12.8 billion.
- Advisory revenue was the highest among Wall Street banks so far, at $818 million.
- Return on equity for the combined banking and markets business was 16.6%.
— With assistance from Keith Gerstein
