NEW YORK (AP) — Investment bank Goldman Sachs said Tuesday that its first quarter profits rose by 26 percent, helped by a lower tax bill and a surge in market volatility.
The Wall Street bank earned $2.83 billion, or $6.95 a share, compared with $2.26 billion, or $5.15 a share, in the same period a year earlier. The results topped analysts’ forecasts, who were looking for Goldman to earn $5.58 a share, according to FactSet.
Revenue increased across all of its businesses, but most notably in trading, which saw revenue rise 31 percent from a year earlier. Trading-heavy firms such as Goldman Sachs tend to prosper when markets are more volatile, and Goldman was able to take advantage of a spike in market turbulence last quarter to lock in more profitable trades. Stock trading revenues more than doubled in the quarter.
The surge in trading revenue helped boost Goldman’s profit margins. The bank’s return on equity, a measurement of an investment bank’s ability to earn revenue off the assets they hold, was 15.4 percent in the quarter. Typically banks like Goldman want to earn a return on equity above 10 percent.
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Goldman also reported a steep drop in its tax bill this quarter, reflecting a similar decline that other banks like JPMorgan Chase, Citigroup and Bank of America also reported. Its effective tax rate was 17.2 percent in the quarter, compared to the bank’s historical tax rate in the high-20 percent range.
The bank has in recent years started to diversify out of its traditional businesses, advising clients and trading, and into more Main Street forms of banking like personal loans and savings accounts under the Marcus brand. That business has been growing rapidly, and so have profits. Goldman’s investing and lending division had net revenues rise 43 percent from a year earlier. Goldman Chief Financial Officer Marty Chavez told analysts Tuesday that the bank has originated $3 billion in personal loans under the Marcus brand, and now has more than $20 billion in deposits under Marcus.
Investment banking revenues rose a more modest 5 percent to $1.79 billion in the quarter. While Goldman saw more revenue from underwriting new bonds, the amount of money earned from advising clients was down 22 percent from a year earlier.
Total revenue for Goldman Sachs rose to $10.04 billion from $8.03 billion in the same period a year earlier.
Goldman Sachs’ main competitor, Morgan Stanley, will report its results on Wednesday. Morgan is typically thought to have the strongest stock traders in the business, so expectations are high for the bank. Analysts expect Morgan Stanley to report a profit of $1.26 a share, up from $1.07 a share in the same period a year earlier.
Goldman shares fell $3.94, or 1.5 percent, to $253.89 in late-morning trading.
Ken Sweet covers banks and the Consumer Financial Protection Bureau for The Associated Press. Follow him on Twitter at @kensweet.