NEW YORK (NYTIMES) - Goldman Sachs has gotten its groove back - for the first three months of 2018, at least.
After a year of uncharacteristic struggles, the bank benefited from wild swings in prices for stocks and other assets to rake in cash in the first quarter, according to an earnings report released on Tuesday (April 17).
Accustomed to dominating its rivals in the trading business, Goldman spent the past year trying to figure out how to rev up an operation feeling the pressure of new regulations and facing competition from non-bank trading platforms. As a result, it lagged its closest competitors last year.
No longer. Goldman booked US$10 billion in revenue for the quarter, its highest total in three years and a 25 per cent increase over the same period in 2017. It reported profits of US$2.8 billion, compared with US$2.3 billion a year earlier.
Investors were unimpressed. After rallying in early trading on Tuesday, Goldman shares fell more than 1 per cent. Its competitors' shares had followed a similar trajectory, falling or barely moving after they reported quarterly earnings on Friday and Monday.
The stock market's roller-coaster ride in the year's first quarter enlivened Wall Street. It was a welcome change after a period of steady gains and muted trading activity that depressed bank profits, which are typically driven by frequent changes in the markets.
While other big banks, including Bank of America, Citigroup and JPMorgan Chase, reported only modest improvements in trading revenue for the quarter compared with the same period last year, Goldman's haul jumped 23 per cent. The surge came not just from an increase in stock trading, but also from growth in Goldman's trading in bonds, currencies, commodities and other assets.
"It's good to see a big recovery from last year," said Devin Ryan, an analyst at the investment bank JMP Securities.
Goldman needed the boost. Last month, as widespread concerns about the vitality of its core businesses appeared to confound the bank's leaders, Lloyd Blankfein, the longtime chief executive, suggested he was willing to step aside within the next two years. Positive momentum this year could help smooth the transition for Blankfein's heir apparent, David Solomon.
The upturn in trading was not the only good news for Goldman. The bank has been bulking up its lending business, which Blankfein has said the bank would rely on to maintain steady growth the next time financial markets start to skid. Goldman said on Sunday that it had bought Clarity Money, a lending app with more than 1 million users.
The increase in lending appeared to pay dividends in the first quarter. Revenue from loans and other debt products rose more than 50 per cent compared with last year. The push also helped Goldman take advantage of rising interest rates, which contributed to the business's US$550 million in interest income for the quarter.
Investors apparently want something more. The hedge fund manager Douglas Kass said in a message posted on Twitter early Tuesday that he expected Goldman's stock to drop. "All the gain relative to expectations came from lower tax rate," he said.
Those in the market for bank stocks have mostly shown little enthusiasm for the biggest institutions' first-quarter performances, despite their apparent strength.
Ryan of JPM Securities said he was not surprised that banks were recording healthy results because they had gotten plenty of help from the Trump administration's tax cuts and a general improvement in the US economy. Investors, he said, wanted to know that the banks could continue their stellar performances after the initial stimulus from the tax cuts fades.
"People are looking for signs of sustainability," Ryan said. "I don't think we're getting indications thus far on the earnings calls that the outlook is much better than what's already been anticipated."