Fix-Income Boom Missed by Goldman Traders

A fixed-income bonanza on Wall Street reduced Goldman Sachs' revenue last quarter, sending its shares down by 4% and contributing to the firm's revenue falling short of analysts' expectations.

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According to a statement released by the firm on Tuesday, fixed-income trading revenue declined 17%. Even though Goldman's performance was the third best in the past decade, it was the only major Wall Street bank to post a drop. The company's equity trading revenue exceeded expectations, helping to soften the blow.

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Also, the bank released $440 million in reserves after offloading a chunk of its Marcus loan book. Earnings were still down 19% from a year ago, despite the firm's higher profit than analysts expected. Due to the partial sale of the portfolio and the transfer of the rest to held-for-sale, the net revenue included approximately $470 million in losses.

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It's down 3.8% this year compared to the S&P 500 Financial Index's 2.9% decline. New York-based Goldman shares dropped 2.7% to $330.41 at 9:46 a.m. in New York.

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Volatile markets have boosted demand for trading services at most of the country's biggest banks. Fixed-income traders at Bank of America Corp. surprised analysts with a 30% increase in trading revenue, which was expected to be a slight drop.

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A rise in interest rates last week boosted earnings at retailers such as JPMorgan Chase & Co. and Wells Fargo & Co. As companies try to ride out volatility, big investment banks have faced muted capital market activity, which has led to lower fees for firms like Goldman Sachs.

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Revenue from investment banking in the second quarter was $1.58 billion, down 26% compared to a year earlier.

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A sale of the loan book contributed to the firm's net provision for credit losses of $171 million for the first quarter. There were expectations that this figure would hurt profits by $828 million. 

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Also, Goldman's real estate investments cost it about $355 million. 

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Last month's US regional banking crisis was triggered by Wall Street giant's bankers and traders helping Silicon Valley Bank raise funds. At the same time, the company's investment bankers were out in the market looking to raise capital for the smaller bank, as well as purchasing its securities portfolio at a substantial discount.

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David Solomon, Goldman Sachs' chief executive officer, said in a statement that the first quarter was another real-life stress test for the company. 

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Asset and wealth management, one of the firm's key growth initiatives, generated $3.22 billion in revenue, compared to analyst expectations of $3.8 billion. The division's revenue missed was largely due to the sale of its loan book. Analysts also expected lower equity investment gains. The unit posted a 24% increase in management fees from a year ago.

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An acquired division, Platform Solutions, which includes credit-card partnerships, transaction banking, and GreenSky installment loans, reported losses of $306 million in the first quarter. There was a significant improvement over the estimated loss of $570 million. In the third quarter, credit losses were less than expected, which was largely driven by a lower provision for credit losses.

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After mounting losses led Solomon to backtrack on his goal of building a massive mass market company at Goldman's investor day in February, the firm is considering strategic alternatives for its consumer business.

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GreenSky Inc., a platform for installment loans that Solomon added about two years ago to the company's consumer division, will be sold, he confirmed in a conference call with analysts Tuesday.

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