This article, originally published at 8:24 a.m. on Tuesday, April 29, 2016, has been updated with market data as well as comments from executives and analysts.

Goldman Sachs (GS - Get Report) posted a 47% drop in bond-trading revenue during the three months through March, the second-worst drop of the biggest U.S. banks. 

The slide, while not as severe as the 56% fall that Morgan Stanley (MS - Get Report) reported a day earlier, illustrated the toll of a volatile start to the year in financial markets, driven by a slowing Chinese economy, plummeting oil prices and concern about the timing of interest-rate adjustments by the Federal Reserve.

Declines at the three other U.S. megabanks with fixed-income trading businesses were less than half the drops at Goldman and Morgan Stanley; the biggest of them, 17%, was at Bank of America. Revenue in Goldman's bonds and commodities business was $1.66 billion.

"The first quarter was obviously difficult for our clients, the market and our opportunity set," CFO Harvey Schwartz said on a call with analysts, noting that the 6% drop on the blue-chip Dow Jones Industrial Average during the first week in January was the worst beginning in the index's 90-year history. "It started with renewed uncertainty about the global economic outlook, with the possibility of recession even being raised."

The fixed-income trading decline was worse than the 45% drop projected by Keefe, Bruyette & Woods analyst Brian Kleinhanzl, who noted that expectations were higher for Goldman given its "ability to beat estimates in the past."

The firm's total revenue and profit both saw double-digit declines, while sales in institutional client services, the group that includes bond and commodities trades, fell 37% to $3.44 billion, Goldman said in a statement. Investment banking revenue dropped 23% to $1.46 billion. 

Finance companies with investment businesses like Goldman were all pinched by a dearth of deal-making and initial public offerings during the first quarter, Kleinhanzl said in an interview before the earnings reports began. No U.S. companies went public in January, and only 11 did so for the entire three-month period, according to a review by accounting firm PwC

"Overall, Goldman Sachs' results verify that the first quarter was a very challenging quarter for investment banks," Kleinhanzl said in Tuesday's note.

Firmwide, Goldman's revenue dropped 40% to $6.34 billion, trailing the $6.69 billion projected by Wall Street. Net income fell 56% to $1.2 billion.

Still, profit of $2.68 a share topped the $2.48 average of analysts in a Bloomberg survey. The bank retained its top ranking in both deal-advisory services and underwriting of stock offerings, and total operating expenses were the lowest in seven years.

While Goldman climbed 2.3% to $162.69 at 1:55 p.m. in New York trading, the gain is less appealing over the long term. Analyst Dick Bove of Rafferty Capital Markets noted that it's roughly the same as Goldman's average of $160 in 2006 -- a decade ago. It's also sharply below the peak of nearly $248 in 2007.

The share price, combined with falling revenue and profit, raises the question of whether it's time to consider a "transformational change" to boost value, Bove said.

"The world has changed and Goldman is on the wrong side of that change," he wrote in a note to clients. "The key problem with Goldman, as I see it, has nothing to do with the way the company operates its business. Using an analogy, this company makes the best magnetic cores and vacuum tubes even though the world has digitized and is using the 'cloud.'"

When Bove asked questions in the same vein on the call, Schwartz noted that the bank can't control its operating environment but has still increased its book value -- a measure of total assets minus liabilities -- and outperformed its peers.

"If we felt like there is a client segment or a transaction we could do that would benefit our shareholders, and we could deliver to those clients, we would do it," he said. "We're open-minded. There is a reason why we're the leading advisory firm in the world. We would take our own advice."

Goldman has responded to the challenging market conditions in part by aggressively cutting costs, executives noted. Pay and benefits dropped 40% to $2.66 billion in the quarter, and total operating costs fell 29%, the firm said.

"We always have our eye on ways we can look to operate more efficiently," Schwartz said on the call. "This is a performance-driven culture, and the performance wasn't great in the first quarter, and as a result you saw compensation and benefits expense down."

The firm's total operating costs were also lower than the last three months of 2015, when Goldman set aside $1.8 billion toward a settlement with the federal government over claims that it misled investors about the quality of home loans included in mortgage-backed securities before the financial crisis.

The settlement was completed earlier this month, when Goldman agreed to pay $5 billion, including a $2.39 billion civil penalty, $1.8 billion in consumer relief and $875 million to resolve claims by other federal regulators and the states of California and Illinois, the Justice Department said in a statement. The amount ranks among the lowest assessed by regulators against Wall Street firms.

Residential mortgage-backed securities, or RMBS's, were a linchpin in the financial crisis since lenders nationwide used them to repackage mortgages of widely varying quality into securities, which were then sold to investors.

That let the lenders record profits while moving the risk of default off their own books and fueled a home-buying boom, expanding the U.S. mortgage market to as much as $15 trillion.

When the housing bubble collapsed and high-risk borrowers were unable to make payments, however, the value of the securities plunged, imperiling major financial institutions that owned them. Investment bank Lehman Brothers failed, leading to a global credit freeze, and others were forced to take massive bailouts as the government worked to prevent economic collapse.

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In the remainder of 2016, Goldman may benefit from stabilizing markets, Schwartz said. Both the Dow Jones and the S&P 500 are now up for the year, and oil prices have rebounded somewhat from a low near $26 a barrel in February.

While the Federal Reserve has lowered its projection for potential short-term rate hike this year by half, to just two, that would still benefit banks that saw interest income curbed by seven years of near-zero rates. The central bank's 25 basis-point hike in December was the first since slashing them to bolster the economy during the financial crisis of 2008.

Goldman already reaped some of the benefits from the increase, with interest income rising 3% from a year earlier to $883 million.

In terms of a recovery, "March was better than February, and February was better than January," Schwartz said. "It's obviously pretty early in the quarter, but I would say that it really feels like many of the factors that were impacting the market in the first quarter, particularly early on, seem to have abated. Although the market feels a little fragile from all that, it feels like for the most part that's behind us."