Updated, 10:59 a.m. | Goldman Sachs reported on Thursday that first-quarter profit declined to $2.03 billion, reflecting a drop in overall revenue and a continued slump in its fixed-income business.
The profit, which translated into $4.02 a share after the payment of preferred dividends, was down 10 percent from $2.26 billion, or $4.29 a share, in the period a year earlier. Wall Street analysts had been expecting profit of $3.44 a share, according to data from Thomson Reuters.
Analysts had been expecting a soft first quarter for Goldman compared with its performance in the period a year earlier, but its results exceeded expectations.
“We are generally pleased with our performance for the quarter given the operating environment,” Lloyd C. Blankfein, Goldman’s chief executive, said in a statement.
The firm generated $9.33 billion in net revenue in the quarter ended March 31, down from $10.09 billion in the period a year earlier. Analysts had been expecting net revenue of $8.7 billion.
Goldman’s investment banking unit benefited from an industrywide surge in mergers and acquisitions activity. The division generated net revenue of $1.78 billion, the highest quarterly figure since 2007 and an increase from $1.57 billion in the first quarter of 2013.
The bank also reduced its operating expenses 6 percent, to $6.31 billion, from the period a year earlier.
Goldman’s return on equity declined to 10.9 percent form 12.4 percent in the first quarter of 2013. Unlike other Wall Street banks, Goldman has declined to disclose a target, although the cost of capital is generally accepted to be around 10 percent.
“I’m not sure necessarily having a published target is necessarily the best way to think about how we’re managing the franchise” Harvey Schwartz, Goldman’s chief financial officer, said during a call with analysts to discuss the bank’s results on Thursday.
Goldman’s struggling fixed-income, currency and commodities unit reported that net revenue fell 11 percent, to $2.85 billion, from $3.2 billion in the period a year earlier. The firm attributed the decline to “significantly lower” revenue from interest rate products, currencies and mortgages.
Goldman, once known as Wall Street’s trading behemoth, has emphasized its commitment to its fixed-income unit during an industrywide slump. Low interest rates and sagging client demand have driven other firms, like Morgan Stanley, away from what they perceive as the riskier business of fixed income.
But Morgan Stanley reported a surprising surge in its fixed-income business on Thursday, saying the unit had generated $1.65 billion in the first quarter compared with $1.52 billion in the period a year earlier, excluding an adjustment related to the firm’s debt. The firm’s overall first-quarter profit rose 18 percent, to $1.39 billion.
Goldman and Morgan Stanley joined two other big banks that reported first-quarter earnings this week.
Bank of America reported a first-quarter loss of $276 million as a result of mounting legal costs related to the financial crisis. On Monday, Citigroup surprised analysts by reporting higher-than-expected first-quarter profit, despite regulatory problems and other issues affecting the banking industry.