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Goldman Comes Up Big

Shares rise after a solid first-quarter earnings release.

Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. (GS) Report

blew away Wall Street's first-quarter estimates on the strength of a sharp improvement in revenue from trading and principal investments.

The New York-based investment bank earned $3.2 billion, or $6.67 a share, for the quarter ended Feb. 23. Goldman earned $5.08 a share in the year-earlier period.

Overall revenue surged to $12.73 billion from $9.41 billion last year. Net revenue in trading and principal investments totaled $9.42 billion, 35% higher than the first quarter of 2006 and 42% above the fourth quarter.

Revenue from trading and principal investments - the largest contributor to Goldman's businesses -- jumped 35% from the first quarter of 2006 and 42% from the fourth quarter to $9.42 billion.

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Investment banking revenue rose 17% to $1.72 billion, fueled by the growth in the global mergers and acquisitions arena and an increase in debt underwriting, particularly as the environment for leveraged financing remained "favorable," the firm said.

Goldman said revenue from its Fixed Income, Currency and Commodities unit rose 20% to $4.6 billion, primarily from "higher net revenue in credit products and mortgages."

"During the quarter, FICC operated in an environment characterized by strong customer-driven activity and favorable market opportunities," Goldman says. "In addition, although the subprime sector within the mortgage market experienced significant weakness, the broader credit environment remained strong."

Yet revenue from commodities and interest rate products remained unchanged from the year-ago period, while currencies fell from last year.

Goldman recorded several gains in its principal investments business reflecting "gains and overrides from corporate and real estate principal investments." Goldman recorded a $227 million gain from its investment in Industrial and Commercial Bank of China, which went public last year, and a $161 million gain related to the firm's investment in convertible preferred stock of Sumitomo Mitsui Financial. In addition, Goldman recorded a gain of $500 million related to accounting changes.

Compensation and benefits expenses rose 15% to $6.1 billion. Goldman's comp ratio -- a measure of how much it spends on compensation and benefits compared to its net revenue -- fell 2.9 percentage points to 48%, while total employees rose 2% during the quarter.

Shares rose $2.41 to $205.01.