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Goldman Blows Past Earnings On Record Debt Underwriting

  • First-quarter EPS of $4.29 a share, beating the consensus estimate of an adjusted $3.86 a share, according to data compiled by Bloomberg
  • Excluding items, first-quarter net income was $2.26 billion, beating the consensus estimate of $1.97 billion.
  • Net revenue came in at $10.09 billion, surpassing an estimate of $9.65 billion.
  • Return on equity was 12.4%, Goldman's fourth-quarter ROE was 16.5%.

NEW YORK ( TheStreet) -- Goldman Sachs (GS - Get Report) on Tuesday reported a surprise 10% rise in profits, as revenue at the bank exceeded $10 billion for the first time in two years.

Goldman's earnings were buoyed by sharp year-over-year revenue gains in the bank's debt and equity underwriting units, which drove overall investment banking revenue higher by 36% to $1.57 billion.

Analysts said the significant earnings beat also hinged on over $1 billion in private equity investment gains and continued tight management of the bank's expense.

Earnings at the nation's top standalone investment bank also reflected record quarterly debt underwriting revenue of $694 million, according to a company statement.

For the quarter, Goldman reported a profit of $2.26 billion, on revenue of $10.09 billion, beating adjusted estimates of $1.97 billion and $9.65 billion respectively.

Adjusted earnings per share of $4.29 surpassed an adjusted estimate of $3.86 a share, according to analyst forecasts compiled by Bloomberg.

Goldman Sachs shares fell less than 1% to $144.96 in early Tuesday trading.

"We think the market will largely ignore the investment gains but the strong investment banking fees and lower compensation ratio should be taken positively," Richard Staite, a banking analyst at Atlantic Equities, wrote in a note to clients.

Goldman's investment banking unit and investment management business posted particularly strong results relative to expectations, while equity trading revenue of $1.92 billion came in lower than some analyst estimates.

Investment banking revenue of $1.57 billion reflected a 36% year-over-year increase, while net revenue from the firm's Institutional Client Services unit, more generally known as trading, came in at $5.14 billion, dropping 10% from the first quarter of 2012.

Goldman's earnings indicated the firm's investment banking unit outperformed competitors JPMorgan (JPM - Get Report) and Citigroup (C - Get Report), who reported revenue of $1.4 billion and $1.1 billion respectively, according to Staite's calculations.

The analyst, however, noted the 10% decline in Goldman's trading revenue was slightly worse than 5% declines posted by JPMorgan and Citigroup. Bank of America (BAC) reports earnings on Wednesday.

Goldman's investment management unit posted $1.32 billion in revenue, reflecting a 12% rise from the first quarter of 2012. The unit posted $9 billion in client asset outflows, largely on money market assets and alternative investments, even as the firm saw a rise in equity and fixed income assets.

"Better than expected investment banking and investment management revenues roughly offset the revenue miss in trading," Brennan Hawken, a UBS analyst, wrote in a note to clients.

"We are pleased with our performance for the quarter," Lloyd C. Blankfein, Goldman Sachs chief executive, said in a statement.

"Our strong client franchise across our businesses drove generally solid results. Still, the potential for macro-economic instability was felt in the quarter and constrained overall corporate and investor activity."

In the first quarter, Goldman Sachs repurchased 10.1 million shares at a total cost of $1.52 billion. The firm also said its Board of Directors authorized the firm to buy back an additional 75 million shares, putting its total authorization at 86.4 million shares or roughly 18.5% of shares outstanding.

Operating expenses of $6.72 billion was unchanged from the first quarter of 2012, as the ratio of compensation and benefits to revenue fell marginally from year-ago levels to 43%.

Prior to earnings, Guggenheim Securities analyst Marty Mosby said that an earnings beat for Goldman would hinge on equity underwriting and investment banking revenue rising faster than income from the bank's vaunted fixed income, currency and commodity trading unit.

Mosby also highlighted rising financial advisory revenue as a key component of first quarter earnings.

While revenue of $484 million in financial advisory reflected flat performance from 2012, equity underwriting rose 63% to $1.08 billion.

"Incremental revenue will drop to the bottom line in a much heavier way than it did in the past," said Mosby of Goldman's recent performance in driving earnings growth and expense cuts.

In a proxy to shareholders released on Friday, Goldman disclosed that chief executive Lloyd Blankfein earned a total of $21 million for 2013, split between a salary of $2 million, a $5.7 million cash bonus and $13.3 million in restricted stock awards.

Equity compensation as a percentage of variable compensation was 70% for Blankfein, COO Gary Cohn, CFO David Viniar, Vice Chairman J. Michael Evans and Vice Chairman John Weinberg, who earned between $17 million and $19 million in total compensation for 2012.

For more on Goldman Sachs see why the company's bottom line will be its key earnings driver in 2013.

See what Warren Buffett's Goldman Sachs stake means for Wall Street. http://www.thestreet.com/story/11880216/1/the-math-behind-warren-buffetts-goldman-sachs-deal.html

-- Written by Antoine Gara in New York

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