(Bloomberg) -- Goldman Sachs Group Inc., the worlds most profitable securities firm before the financial crisis, reported earnings that topped analysts estimates on a 63 percent gain in revenue from underwriting stocks and bonds.
First-quarter net income rose 7 percent to $2.26 billion, or $4.29 a share, from $2.11 billion, or $3.92, a year earlier, the New York-based company said today in a statement. That was higher than all 24 analysts estimates in a Bloomberg survey.
Record debt-underwriting revenue and cost-cuts helped Chief Executive Officer Lloyd C. Blankfein, increase return on equity to 12.4 percent from 12.2 percent a year earlier. Blankfein, 58, has sought to boost returns by cutting $1.9 billion in expenses and benefiting as trading volume increases and some competitors exit business lines.
It was a pretty good quarter from a capital-markets perspective, Keith Davis, an analyst at Farr, Miller & Washington LLC, which manages about $890 million, including shares of Goldman Sachs, said before the results were released.
Goldman Sachs dropped to $146.30 in New York trading at 8:19 a.m. from $146.46 yesterday. The stock gained 15 percent this year through yesterday after advancing 41 percent in 2012. The shares reached $193.60 on Oct. 14, 2009.
Revenue rose 1 percent to $10.1 billion. Compensation, the firms biggest expense, fell 1 percent to $4.34 billion and amounted to 43 percent of revenue for the quarter, down from 44 percent a year earlier.
We continue to be very focused on controlling our costs and efficiently managing our capital, Blankfein said in the statement. The potential for macro-economic instability was felt in the quarter and constrained overall corporate and investor activity.
First-quarter revenue from investment banking, the business run globally by Richard J. Gnodde, David M. Solomon and John S. Weinberg, climbed 36 percent to $1.57 billion. That topped JPMorgan Chase & Co.s $1.43 billion in investment- banking revenue for the first time in more than five years.
The figure included $484 million of financial-advisory revenue, including fees for takeover advice, a drop of 1 percent. Revenue from underwriting, a business led by Stephen M. Scherr, climbed to $1.08 billion in the first quarter, including $694 million from debt underwriting and $390 million for equity offerings.
Goldman Sachs held the top spot among arrangers of global equity, equity-linked and rights offerings in the first quarter, according to data compiled by Bloomberg. It ranked second in advising on announced mergers and acquisitions and fifth in underwriting U.S. bonds, the data show.
Fixed-income, currency and commodity trading revenue was $3.22 billion, down 7 percent from a year earlier and up 58 percent from the fourth quarter. Excluding a $42 million accounting adjustment, revenue was $3.26 billion. That compared with estimates of $3.25 billion from Credit Suisse Group AGs Howard Chen and $3.1 billion from Richard Staite, an analyst at Atlantic Equities.
Revenue from the equities division, overseen by co-Chief Operating Officers R. Martin Chavez, Michael D. Daffey and Paul M. Russo, declined 15 percent from a year earlier to $1.92 billion. Excluding a $35 million accounting adjustment, revenue was $1.96 billion. That missed Chens $2 billion estimate, and matched Barclays Plcs Roger Freemans projection.
Total revenue from sales and trading, led globally by Pablo J. Salame and Isabelle Ealet, was $5.14 billion. That was below the $5.45 billion at Citigroup Inc. and $6.09 billion at JPMorgan.
Citigroup yesterday reported that fixed-income trading rose 69 percent from the fourth quarter, topping analysts estimates. JPMorgan, the biggest U.S. bank by assets, reported earnings on April 12 that beat estimates as expenses dropped 16 percent.
Bank of America Corp., the second-largest lender, is set to release results tomorrow. Morgan Stanley, the sixth-biggest bank, is due on April 18.
Investing and Lending, which includes gains and losses on Goldman Sachss own investments in stocks, debt, real estate, private equity and hedge funds, as well as loans, posted first- quarter revenue of $2.07 billion, up from $1.91 billion a year earlier and the highest in two years.
Investing and Lending includes Goldman Sachss stake in Industrial & Commercial Bank of China Ltd., that countrys biggest lender, as well as Facebook Inc., operator of the worlds largest social network. The segment also books profits or losses from the Special Situations Group, a proprietary investing unit led globally by Hong Kong-based Jason M. Brown.
Revenue from asset management rose 12 percent to $1.32 billion. Total assets under management increased $3 billion during the quarter to $968 billion.
Investors are seeking more information about future dividend increases and share buybacks. While Goldman Sachss capital proposal was approved by the Federal Reserve last month, the regulator said Goldman Sachs must submit a new plan to address weaknesses related to projections of losses and revenue.
Goldman Sachs didnt disclose its capital plan as other banks announced buyback and dividend raises after the stress- test results were released. Last year, the bank increased its dividend twice, boosting the quarterly payout to 50 cents a share from 35 cents, and repurchased $4.64 billion of stock after winning Fed approval. It held the dividend at that level for its next payout on June 27, the bank said today.
Warren Buffetts Berkshire Hathaway Inc. reached an agreement with Goldman Sachs last month to settle warrants granted at the height of the 2008 financial crisis, which will make Berkshire one of the banks largest shareholders without paying anything.
Berkshire had the right to buy 43.5 million Goldman Sachs common shares for $115 apiece until Oct. 1. Under the deal, Buffetts firm will get Goldman Sachs stock equal to the difference between the average closing price during the 10 trading days before Oct. 1 and the exercise price, multiplied by 43.5 million.
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