(Bloomberg) — Goldman Sachs Group Inc.'s approach of getting back to basics is paying off as it posted earnings that topped past expectations and boosted its stock the most this year.
The Wall Street giant posted a 28% rise in net income in the first quarter, even as analysts were bracing for a decline from a year earlier. That surprise rise was led by its traders — who avoided a slowdown at chief rival JPMorgan Chase & Co. – and bankers who cashed in on a resurgence in deal activity.
Goldman Sachs has sought to win back investors with a renewed focus on its core Wall Street business and a more predictable approach in its money management unit. It comes after the firm's management faced criticism for losing control of its retail banking push and spent most of 2023 gutting that effort amid a broader slowdown, leading to underwhelming results.
As activity in capital markets picks up again, analysts predict Goldman will be better positioned to benefit from this rebound. But a complete one jump back it is not guaranteed, threatened by the Federal Reserve's still unpredictable rate-cutting moves and the onset of new global conflicts.
The return from 2023 was most evident in one key metric. The bank reported a return on equity of 14.8% for the first three months, in line with its long-term targets and nearly double the dismal 7.5% it posted for 2023. The results also included a $78 million charge for an additional federal deposit. Insurance Corp. special. stemming from last year's regional bank failures.
Net income was $4.13 billion, or $11.58 per share, up from $14.21 billion in revenue in the first quarter. Goldman shares rose as much as 6% and were up 5.1% at $409.21 at 9:38 a.m. in New York.
“We feel very good about our first quarter results,” Chief Executive Officer David Solomon said on the earnings call. “This performance was helped by the quick actions we took last year to narrow our strategic focus and play to our core strengths.”
Fixed-income traders delivered $4.32 billion in revenue, beating analysts' previous forecasts for a decline, driven by mortgages and structured loans. In November, the bank tapped Mahesh Saireddy as its global head of mortgages and structured products. Shares trading revenue of $3.31 billion also topped expectations as the New York-based firm seeks to cement its status as leading stock trading franchise.
Read more: Return of the Goldman Equity Trading Unit
Investment banking revenue of $2.08 billion compared to the average analyst estimate of $1.82 billion. Merger advisory fees of $1.01 billion were also ahead of estimates. Its equity business was $370 million with a return to public stock offerings and debt underwriting proceeds were $699 million. The firm said its backlog of deals decreased compared to the previous quarter.
Goldman's asset and wealth management business posted revenue of $3.79 billion, up 18% from a year earlier. Management fees rose 7% as the bank is looking to shift the increase to those fees instead of windfall gains from balance sheet investments. These landmark investments fell below $15 billion, meeting a goal Goldman had set for itself. That part of its business contributed to big earnings swings for the unit, and management believes that this hampered investors' willingness to embrace the stock.
Fund raising for private markets investments was $14 billion for the quarter with total assets under supervision growing to $2.85 trillion. Goldman noted that credit was the biggest gainer, attracting half of the alternative funds raised in the quarter.
The bank also reported a pre-tax margin of 23% in that business with private banking and lending revenues nearly doubling from a year ago.
Goldman's smaller unit known as Platform Solutions, privately called a bad bank by some of its executives, had a pretax loss of $117 million. This group holds the firm's consumer credit card partnerships and its transaction banking business.