* Profit $2.19 bln vs $2.07 bln a year earlier
* Per-share profit $4.29 vs Street view $3.88
* Revenue from client trading falls 10 pct
* Shares down 2.4 pct in morning trading
(Recasts, adds comment from analyst and investor, details on
By Lauren Tara LaCapra and Tanya Agrawal
April 16 (Reuters) - Goldman Sachs Group Inc reported
higher quarterly earnings on Tuesday but said revenue from
client trading fell 10 percent, raising questions about the
health of its biggest money maker.
Trading has long been the biggest business for the Wall
Street bank, accounting for nearly 60 percent of its revenue
over the past four years. But as market volumes have declined
since 2009 and competitors have gained strength, Goldman's
trading business has lost some of its luster.
First-quarter profit rose 5.5 percent as other businesses
made up for the trading declines. Goldman's own investments and
investment banking revenue climbed. Yet each of those businesses
are less than half the size of the trading franchise.
Overall, Goldman reported just a 1 percent increase in
revenue, which David Trone, an analyst with JMP Securities, said
indicated a "lack of momentum." The bank's shares were down 2.4
percent to $142.96 in morning trading.
At one time Goldman reported its own trading profits and
client trading profits together in one business line. But it
separated the two items in 2011 after investors and shareholders
complained that its earnings were too opaque. The bank now has
an earnings segment called "Investing and Lending" that shows
how much revenue Goldman receives from mark-ups on a wide range
of investments - from stocks and bonds to mines and metal
warehouses - as well as interest payments on loans.
For the first quarter, Goldman reported $2.1 billion of
revenue from Investing and Lending, an 8 percent rise from a
year earlier and the second-highest total since it began
separating out that earnings category. Most of the increase came
from gains in private-equity holdings, the bank said.
Goldman's client trading business reported declines across
the board. Bond trading revenue - historically one of the most
lucrative businesses for the bank - dropped 7 percent. Equities
trading revenue fell 15 percent.
Overall first-quarter profit rose thanks to both the
Investing and Lending gains and sharp increases in stock and
bond underwriting fees. Net income applicable to common
shareholders rose to $2.19 billion, or $4.29 per share, from
$2.07 billion, or $3.92 per share, a year earlier.
Analysts on average had expected earnings of $3.88 per share
before unusual items, according to Thomson Reuters I/B/E/S.
"Trying to predict bank earnings down to the penny is an
impossible task because they're just so non-transparent," said
Bernie Williams, vice president of discretionary money
management at USAA Investments, which oversees $55 billion in
But among big banks, "Goldman probably has the widest
variance" compared to expectations, he said, because Goldman is
so heavily weighted in trading and principal investments.
GAINS FROM EQUITIES
Total first-quarter revenue increased 1.4 percent to $10.09
billion, while revenue from trading in fixed income securities,
currencies and commodities on behalf of clients dropped 7
percent to $3.22 billion.
Goldman's investment banking revenue increased 36 percent to
Total operating expenses were little changed at $6.72
Goldman's annualized return-on-equity, a closely watched
measure of profitability, rose to 12.4 percent from 12.2 percent
a year earlier but was still far below pre-crisis levels of
above 30 percent.
The bank's average daily value at risk, which measures the
maximum that Goldman could have lost on 95 percent of trading
days, was $76 million during the first quarter, down from $95
million a year earlier.
Goldman said its Tier 1 capital ratio slipped to 14.4
percent from 14.7 percent.
The U.S. Federal Reserve told Goldman in March that its
annual "stress test" showed the bank needed to improve its
capital plans. At that time, Chief Executive Lloyd Blankfein
said Goldman would resubmit its capital plan with enhancements
by the end of the third quarter.
Goldman's Investing and Lending earnings come mostly from
mark-to-market gains on stocks, bonds, loans and other assets.
It also included interest income from loans.
The unit continues to befuddle investors and analysts since
it invests in a wide array of assets and there is little
The bank breaks Investing and Lending earnings into four
segments -- gains on a large equity stake in the Industrial and
Commercial Bank of China, gains on other equity
securities excluding ICBC, gains and interest from debt and
loans, and "other."
Changes in the value of equity securities was the biggest
factor in the 24 percent rise in the segment's revenue in the
JPMorgan Chase & Co, the biggest U.S. bank, reported
a 33 percent rise in first-quarter profit on Friday, but most of
its major businesses turned in lackluster performances.
Citigroup reported a 30 percent rise in profit on
Monday, helped as the bank made more money from underwriting
stock issues and advising companies on mergers.
(Reporting By Lauren Tara LaCapra in New York and Tanya Agrawal
in Bangalore; Editing by Supriya Kurane and John Wallace)