Goldman Sachs net falls as debt trading lags JPMorgan

Global Headquarters of the Goldman Sachs Co. Global Headquarters of the Goldman Sachs Co.

April 17 (Bloomberg) -- Goldman Sachs Group Inc., the fifth-biggest U.S. bank by assets, said profit fell 23% as revenue from trading bonds, currencies and commodities lagged behind Citigroup Inc. and JPMorgan Chase & Co.

First-quarter net income dropped to $2.11 billion from $2.74 billion a year earlier, the New York-based bank said today in a statement. Earnings per share of $3.92 beat the $3.55 average estimate of 24 analysts surveyed by Bloomberg. The bank boosted its quarterly dividend 31% to 46 cents a share, the first increase since 2006.

Goldman Sachs, led by Chief Executive Officer Lloyd C. Blankfein, reported a 20% decline in fixed-income trading revenue to $3.46 billion and cut the size of its market bets to the lowest level since 2006. JPMorgan, the biggest U.S. bank, said last week revenue from that business fell 11% to $4.66 billion and Citigroup, No. 3 by assets, yesterday reported a 4% drop in fixed-income trading to $3.65 billion.

“Although earnings actually beat consensus, I think that the results look somewhat disappointing in comparison with the strong numbers we’ve seen out of JPMorgan and Citigroup,” Richard Staite, an analyst at Atlantic Equities LLC in London, said in a telephone interview. “The market had perhaps hoped for a real blow-out quarter from Goldman Sachs.”

Goldman Sachs rose 61 cents, or 0.5%, to $118.34 in New York trading, increasing this year’s advance to 31 percent. It declined 46% in 2011, the second-worst annual performance since Goldman Sachs went public in 1999, as profit slid to the lowest level since 2008.

Cost Cutting

Blankfein, who began cutting costs in 2011 as revenue declined for the second straight year, is banking on international expansion and a market rebound to restore profit growth. Gains in stock and corporate debt markets boosted total trading revenue 87% from the fourth quarter.

Blankfein, 57, and President Gary D. Cohn, 51, were criticized by former derivatives salesman Greg Smith in a New York Times opinion piece last month for presiding over what Smith called a decline in the firm’s commitment to client service. In a memo sent to current and former employees, Blankfein and Cohn said Smith’s view of the firm isn’t shared by most employees, adding that they would investigate his claims.

Blankfein and Cohn, approaching their sixth anniversary in their current roles, are also contending with the departure of more than 50 partners in the past year, including eight members of the management committee.

Preferred Dividends

Net income attributable to common shareholders, which includes the cost of preferred dividends, climbed to $2.07 billion from $908 million, or $1.56 per fully diluted share, a year earlier. Excluding a $1.64 billion one-time dividend paid to Warren Buffett’s Berkshire Hathaway Inc., last year’s first quarter net income for common shareholders was $2.55 billion, or $4.38 per share.

Revenue at Goldman Sachs fell 16% to $9.95 billion from $11.9 billion a year earlier, beating the $9.41 billion average estimate of 15 analysts surveyed by Bloomberg. Book value per share rose to $134.48 from $130.31 at the end of December.

“Our mix of businesses gives the firm significant room for revenue growth as economic and market conditions continue to improve,” Blankfein said in the statement.

Value-at-risk, a measure of how much the firm expects it could lose in a single day of trading, dropped to an average of $95 million in the first quarter from $135 million in the fourth quarter.

Return on Equity

Return on equity, a gauge of how well Goldman Sachs reinvests shareholders’ earnings, was 12.2 percent. That compares with 14.5% in the first quarter of 2011, excluding the dividend to Berkshire.

Operating expenses decreased to $6.77 billion from $7.85 billion a year earlier. Compensation, the biggest expense, declined 16% to $4.38 billion from $5.23 billion. The firm employed 32,400 people at the end of March, down from 35,400 people a year earlier.

Institutional securities, the sales and trading division led since January by Isabelle Ealet, Pablo J. Salame, and Harvey M. Schwartz, generated $5.17 billion in revenue during the first quarter. That’s down 14% from $6.65 billion a year earlier and up from $3.06 billion in the fourth quarter.

Within that division, fixed-income, currency and commodities trading revenue of $3.46 billion compared with $4.33 billion a year earlier and $1.36 billion in the fourth quarter. Equities revenue of $2.25 billion was down from $2.32 billion a year earlier and up from $1.69 billion in the prior quarter.

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