Goldman Sachs cautious despite earnings

CEO Lloyd Blankfein called Goldman’s quarterly results “generally solid.”
Mark Lennihan/AP
CEO Lloyd Blankfein called Goldman’s quarterly results “generally solid.”

NEW YORK — Goldman Sachs reported a strong first quarter, but analysts were more concerned about the bank’s future than the past three months. They peppered the chief financial officer with questions about impending regulations, and investors sent Goldman’s stock down even as other banks rose.

By the numbers, it was a decent quarter. Profit rose 5 percent and revenue was up 1 percent. Both beat analysts’ expectations. Bond underwriting soared 69 percent as issuers rushed to take advantage of low interest rates and a hearty appetite for corporate debt among investors. CEO Lloyd Blankfein described the results as ‘‘generally solid.’’

Goldman’s leaders sounded a cautious tone on a conference call with analysts, however. They said investors were still nervous about the economy and that the bank would continue to focus on controlling costs.


The results were another reminder that the US banking industry has settled into a steady rhythm of slow growth and cost-cutting — a far cry from the turbocharged era that existed prior to the financial crisis of 2008. It’s an especially sharp change for Goldman, long considered the king of Wall Street.

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‘‘We are very close still to the epicenter of the crisis,’’ chief financial officer Harvey Schwartz said on a call with analysts, describing clients’ uncertainty over the economy. ‘‘So people’s memories are very fresh.’’

Like other banks, Goldman is under pressure to find new sources of revenue as financial regulations tighten and to figure out how to make money in an uncertain economy.

On the conference call, Schwartz was asked how he knew whether he was making the right decisions about what to cut from the bank and other strategy choices. Schwartz replied that didn’t have a ‘‘crystal ball.’’

More on Goldman’s first-quarter results:


 Where the earnings came from: The investment bank underwrote more bond and stock offerings. The bank also made money on its own stock investments and on managing money for clients. Revenue from advising companies on mergers and acquisitions fell. So did revenue from trading on behalf of customers.

 How clients are feeling: Goldman’s customers — mostly large institutions like pensions, mutual funds, and hedge funds — felt more confident in January and February, then pulled back in March. They were unnerved by the banking crisis in Cyprus, inconclusive elections in Italy, and a budget impasse in the United States.

 Cost-cutting: Goldman’s expenses fell 1 percent. The bank cut about 400 jobs, or 1 percent of its workforce. Analysts noted that a key measure of compensation — what the bank sets aside for compensation versus total revenue — was down to 43 percent from 44 percent a year ago.

 Stress tests: Early this year, the government put the big banks through annual ‘‘stress tests’’ to see how they’d fare in a severe downturn, and asked the banks to submit plans for how they’d return money to shareholders. Last month, the Federal Reserve said it had concerns about unspecified weaknesses in Goldman’s capital plan and told the bank to submit a new one by the end of September. Schwartz said Goldman would work closely with the Fed to address its concerns.

 By the numbers: Goldman earned $2.2 billion in the first quarter, up from $2.1 billion a year ago. That worked out to $4.29 per share, beating the $3.90 predicted by analysts polled by FactSet.