Goldman Sachs earnings beat the Street, equities trading surges 38%

Goldman Sachs reported first-quarter results that beat significantly on both the top and bottom line as the bank’s traders took advantage of a volatile stock market, posting the highest equities trading revenue in three years.

Here’s what the bank reported compared to what analysts polled by Thomson Reuters were expecting:

— Revenues $10.04 billion versus expectations of $8.74 billion.
— Earnings per share of $6.95 versus expectations of $5.58.

Goldman also raised its quarterly dividend 5 cents to 80 cents per common share.

Revenue from equities trading surged 38 percent to $2.31 billion, trouncing the $1.92 billion consensus analyst estimate from FactSet. The bank pointed to higher fees, high market volatility and more client activity compared to the last quarter of 2017 as reasons for the better results.

The S&P 500 fell into correction territory in February on fears over rising interest rates. The stock market has remained volatile since then as Wall Street weighs a brewing trade battle between the U.S. and China.

The bank reported fixed income, currencies, and commodities trading revenues of $2.07 billion, which was slightly below the $2.13 billion consensus analyst estimate from FactSet. Goldman said lower net revenues in interest rate products and mortgages affected results. Still, the figure marked a 23 percent increase from a year earlier and was also the highest quarterly result in three years.

The bank reported a 34 percent decline in trading revenue in the fourth quarter, raising pressure for Goldman to deliver in the first quarter, which it largely did.

“Solid performance across our businesses produced strong returns in the first quarter,” Goldman Sachs CEO Lloyd Blankfein said in a statement. “We are well positioned to serve our clients as the global economy continues to show strength and central banks unwind certain aspects of policy stimulus.”

Recent tax legislation, which lowered the corporate tax rate from 35 percent to 21 percent, also helped results. Goldman said its effective tax rate for the first quarter was 17.2 percent.

Shares of Goldman rose about 1 percent in premarket trading.

Last quarter, Goldman reported earnings that topped Wall Street estimates but the bank posted a net loss when factoring in a tax hit, largely because of a one-time charge for bringing overseas profits back to the U.S. Investors were also unhappy with the poor trading results.

David Solomon is next in line to succeed Blankfein after the firm announced Harvey Schwartz, who shares the titles of co-president and co-chief operating officer, is leaving the bank April 20. A report from The Wall Street Journal that Blankfein was likely to step down as soon as this year had accelerated discussions about who would take over.

Blankfein has not said exactly when he will step down, and there has been speculation that he could hold off until 2019, and stay on as chairman even after departing as CEO.

Goldman is looking to transition out of its core trading business into more profitable lines. Its investment banking arm, for example, notched $2.14 billion in net revenues last quarter and $7.37 billion for the year, its second best ever. Mergers and acquisitions continue to be a mainstay for the firm.

Goldman follows other major U.S. banks’ reporting earnings this week. Bank of America reported better-than-expected results on Monday, while J.P. Morgan, Wells Fargo and Citigroup all beat analysts’ earnings per share expectations on Friday.