Goldman Sachs Group Inc (GS.N) surprised Wall Street on Tuesday, reporting better-than-expected profit and dialling back risk-taking in ways that are uncharacteristic for the traditionally aggressive investment bank.
In fixed income, currency and commodities trading (FICC) -- where Goldman has been known for lucrative, if risky, bets -- the bank highlighted interest-rate products as a bright spot and said other major businesses reported lower revenue.
Goldman's average daily value at risk - a key measure of risk-taking at Wall Street banks - declined by 16 percent from the year-ago period and 29 percent from the 2011 fourth quarter.
In another move that made the Wall Street firm look a little more like the less profitable, run-of-the-mill commercial banks, Goldman raised its dividend 31 percent to 46 cents per share.
It is only the third dividend increase since the bank went public in 1999. It last raised the dividend in 2006. Goldman executives have repeatedly said they prefer returning money to shareholders through stock buybacks.
The shift toward a lower risk profile comes as Goldman and other investment banks have found their profits under pressure from continuing stress in the capital markets in recent years and new regulations aimed at reducing risk at such firms, including higher capital requirements, restrictions on trading, and curbs on investments in hedge funds and private equity.
But investors had been expecting Goldman to find ways to increase profitability and post even stronger results, especially after major rivals JPMorgan Chase & Co (JPM.N) and Citigroup Inc (C.N) outperformed expectations in the first quarter.
Goldman's revenue from FICC was $3.5 billion in the first quarter, down 20 percent from a strong year-ago quarter but more than double the fourth quarter. Still, UBS analyst Brennan Hawken described the revenue as "light" against his forecast of $4.2 billion.
Revenue was down across most of Goldman's businesses compared with a year earlier, except for financial advisory and stock trading for clients.
Its investment management division was perhaps the weakest business, reporting net outflows and lower revenue. Analysts had expected gains at money-management firms across Wall Street because of a stock-market rally during the first quarter.
"We believe the market was expecting a strong quarter, particularly after seeing the capital markets revenue beats at the universal bank reports thus far," said David Trone, an analyst at JMP Securities. "Add the investment management difficulties and Goldman shares could be in a tug-of-war today."
The shares were little changed in morning trading on the New York Stock Exchange, up 12 cents to $117.85.
PROFIT BEATS EXPECTATIONS
Goldman earned $2.1 billion, or $3.92 per share, for the first quarter. In the year-ago period, which was generally stronger for investment banks' trading and banking activity, it earned $4.38 per share, excluding a one-time cost for buying back preferred stock from Warren Buffett's Berkshire Hathaway Inc (BRKa.N).
Analysts had expected $3.55 per share, according to Thomson Reuters I/B/E/S.
In lieu of higher revenue, Goldman also made further cuts to staffing and expenses to boost its bottom line, in what is expected to be the final stretch of an aggressive cost-cutting program that began during the second half of 2011.
The bank set aside $4.4 billion for compensation and benefits during the first quarter, down 16 percent from a year earlier. It also reduced its workforce by 900 employees, or 3 percent.
(Additional reporting By Rick Rothacker; editing by Paritosh Bansal, Dan Wilchins and John Wallace)