Goldman Sachs earnings top Wall Street's estimates

AP

(AP) NEW YORK - Goldman Sachs (GS) more than doubled its first-quarter profits for common shareholders and announced plans to raise its dividend Tuesday.

The strong results masked other problems, including a 16 percent decline in revenue. Also, the jump was largely a quirk related to repaying Warren Buffett's Berkshire Hathaway last year. To make up for that, Goldman turned to cost-cutting.

The storied investment bank slashed 3,000 workers over the year, or about 8 percent of its work force. It cut back on salaries, trimmed occupancy costs and paid less in brokerage fees, cutting total expenses by 14 percent. Average compensation per employee, which includes benefits, fell to $135,000 for the quarter, down from $148,000 a year ago.

Revenue from financial advising, where the bank advises big companies and investors on mergers and acquisitions, was one of the few areas to record a revenue gain, 37 percent.

Revenue from underwriting stock and bond sales fell 27 percent. Revenue from trading fell 14 percent, hurt by lower fees and revenue from the division that trades bonds, currencies and commodities. Total revenue fell to $9.9 billion from $11.9 billion, though that beat the $9.4 billion that analysts polled by FactSet had been expecting.

Goldman Sachs said its net income available to common shareholders rose to $2.1 billion, or $3.92 per share. That was a jump of about 128 percent from $908 million, or $1.56 per share, a year ago. The per-share earnings also beat expectations of analysts, who had been predicting $3.52.

Citigroup made $2.9 billion, misses estimates

The net income for common shareholders strips out expensive dividend payments that the bank makes to preferred shareholders. Including those, Goldman's profits fell 23 percent. The first quarter of 2011 included a repayment to Buffett for his investment in the bank. Goldman had an easier time doubling its net income for common shareholders because it didn't have to make that same payment.

The bank also announced it would raise its quarterly shareholder dividend to 46 cents per share from 35 cents. Though the bank didn't say so, that's a particular sign of strength in the current market, because it's also a reminder that Goldman, unlike some of its peers, got permission to do so after passing the government's most recent round of stress tests.

CEO Lloyd Blankfein called the quarter a "solid performance." In a prepared statement, he noted that "client activity remains relatively low in certain areas," but said that "our mix of businesses gives the firm significant room for revenue growth as economic and market conditions continue to improve."

For decades, Goldman has been known for beating its Wall Street competitors and churning out executives who go on to high leadership positions.

But the past few years have left it bruised. Last fall, it recorded a quarterly loss, only its second since going public in 1999. In 2010 and 2011, its net income fell year-over-year in six of the eight quarters.

Investors are trying to piece together whether the troubles are a short-term annoyance or a sign of deep-rooted problems. They wonder if the bank needs a new game plan.

Like the rest of the banking industry, Goldman has to figure out how to navigate a world of stricter government controls that will dry up some of its key revenue streams. Goldman has made big profits trading for its own account, especially when markets are volatile. But regulations taking effect this year will reduce Goldman's ability to make those trades.

Unlike much of the banking industry, Goldman doesn't have a large consumer banking arm to fall back on when trading and investment banking get bumpy. Its clients are largely hedge funds and multinational corporations that need to hedge their bets on foreign currencies, fluctuating interest rates and commodities.

Return on equity was about 12 percent, in line with a year ago. That was a big change from 38 percent five years ago, before the global economic meltdown.

Goldman also has public-relations problems to worry about. In the era of Occupy Wall Street, Goldman has been the target for much of the vitriol of people who blame the financial crisis on reckless practices in the banking industry. Last month, the vitriol came to a head when a mid-level executive resigned via a blistering editorial in the New York Times, where he accused the bank of losing its "moral fiber" and caring only about its own profits rather than its clients'.

The accusations are still swirling. Last week, the bank agreed to pay $22 million to settle regulators' charges that Goldman analysts shared confidential research with favored clients. In the first quarter, the bank set aside $59 million for litigation and regulatory proceedings.

Goldman Sachs' stock fell slightly in pre-market trading, down 73 cents to $117.

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