The finance industry's most formidable trading powerhouse has continued a run of positive results across Wall Street. Goldman Sachs said the bank had $10.6 billion in revenue for the first quarter of this year, outpacing analysts' expectations of $9.3 billion and up 14% from the first quarter of last year. The bank's profits were $5.94 per share with some adjustments, beating out projections of $4.26 and up 48% from a year ago. The bank's net income was $2.8 billion.
Goldman's stock has been on a run this year, up almost 3% this week before it reported earnings following strong trading results from one of its largest rivals, JPMorgan Chase, and rose above $200 for the first time since 2008 to $201.10 by end of trading Wednesday. The stock has risen 4% since the beginning of this year. In early trading, however, Goldman shares were down about 1% to $199.
The blowout first quarter — the highest revenue quarter in four years, the bank said — was anchored, as usual, by strong performance in its fixed-income, currencies, and commodities unit, which had $3.1 billion in revenue, exceeding projections of $2.9 billion and up 10% from the first quarter of last year.
The bank attributed the strong results to "significantly higher net revenues in currencies and interest rate products" as markets became more volatile, especially in foreign exchange, during the beginning of the year. "Higher volatility levels ... contributed to higher client activity levels, particularly in currencies and interest rate products," the bank said.
The firm's equity trading business, which typically generates a fraction of the revenue of fixed income, had such a good quarter that one analyst, Christ Kostowski of Oppenheimer, said "the result is so discontinuous" during Goldman's call with analysts. The $1.1 billion in revenue was almost triple the $416 million in revenue the unit generated in the first quarter of last year. Goldman Sachs chief financial officer Harvey Schwartz said that the blowout result was "due to a favorable market backdrop with higher levels of client activity, particularly in derivatives."
Goldman's investment banking unit, which strikes deals such as mergers, spin-offs, and initial public offerings, had its best quarter since 2007, the bank said, with $1.9 billion in revenue, up 7% from a year ago.
"We are pleased with our results this quarter and the fact that all of our major businesses contributed," Goldman's chief executive, Lloyd Blankfein, said in a statement. "Given more normalized markets and higher levels of client activity, we remain encouraged about the prospects for continued growth."
With record-setting revenue, however, came high pay for Goldman's employees. The bank said employee compensation and benefits cost some $4.5 billion, 11% more than in the first quarter last year. The ratio of compensation to revenue, however, declined from 43% to 42% over the year. Goldman has a total staff of 34,400.
"We have long had a pay-for-performance culture," Blankfein said at a presentation in February. "[There is a] strong correlation between the firm's performance and its levels of compensation."