NEW YORK (Reuters) -Goldman Sachs beat first-quarter profit estimates as its traders capitalized on volatile markets to bring in record equities revenue, but the bank's CEO warned of a difficult environment ahead.
The Wall Street bank joined rivals JPMorgan Chase and Morgan Stanley in reporting higher profits, but investors are more focused on future projections as tariffs increase inflation and recession risks.
"While we are entering the second quarter with a markedly different operating environment than earlier this year, we remain confident in our ability to continue to support our clients," said CEO David Solomon, who noted the "great uncertainty" that hung over markets in the first quarter.
Goldman's profit rose 15% to $4.74 billion, or $14.12 per share, for the three months ended March 31, the bank said on Monday.
The average analyst estimate for earnings was $12.35 per share, according to data compiled by LSEG. The bank's shares rose 1% to $499.26.
Turbulent markets lifted Goldman's equities trading revenue by 27% to a record $4.2 billion as investors scrambled to remake their portfolios to mitigate the hit from the new tariffs.
Fixed income, currency and commodities trading revenue rose 2% to $4.4 billion.
However, investment banking fees fell 8% to $1.9 billion in the quarter due to lower advisory fees.
Initial public offerings are yet to recover meaningfully. The benchmark S&P 500 index has dropped around 9% so far this year and mergers and acquisitions remain subdued.
"Our client dialogues remain elevated, and our backlog is up for the fourth consecutive quarter," Solomon said, referring to deal discussions. "That being said, our ability to execute on these transactions will, of course, be dependent on market conditions."
Ongoing policy uncertainty and market volatility are prompting clients to reposition their portfolios, driving higher trading activity, he added.
The shift underscores a dramatic change in sentiment for a sector that, until just a few months ago, had been celebrating U.S. President Donald Trump's return to the White House.
"I don't think investment banking is dead," said Chris Marinac, director of research at Janney Montgomery Scott. "It's just going to be slower, and certainly it's not going to be as robust."
Addressing the administration's sweeping economic policy moves, Solomon outlined how the U.S. has benefited from trade and the dollar's role as the reserve currency.
"The administration's focus on trade barriers and strengthening the U.S. competitive position is commendable," he said. But it was important to note that few "have benefited more from the post World War Two economic and financial order than the United States."
Goldman's shares have fallen 12% since the tariffs were unveiled earlier this month, while rival JPMorgan and Morgan Stanley are 4% and 9% lower, respectively.
But concerns had emerged even before the latest slide. Brokerage Oppenheimer downgraded Goldman's shares in March, warning that the Trump administration's aggressive efforts to upend global trade norms could hit a slew of firms reliant on capital markets activity.
ASSET & WEALTH UNIT FALTERS
Revenue from Goldman's asset and wealth management arm, the unit that caters to institutions and high net-worth individuals, fell 3% to $3.68 billion due to losses on equity and debt investments.
The bank's assets under supervision climbed to a record $3.17 trillion. It has been working to make the unit a steady revenue stream that is relatively insulated from wild market swings.
An executive from Goldman's asset division said earlier this month that the tariffs were a "growth shock."
The bank's first-quarter results come months after Solomon was awarded an $80 million stock bonus to stay at the helm for another five years.
President and Chief Operating Officer John Waldron, widely viewed as Solomon's successor, was also awarded a retention bonus of $80 million in restricted stock.
There has been pushback from skeptics who view the compensation as excessive. Proxy advisers Institutional Shareholder Services and Glass Lewis have called on investors to reject the awards, complicating the board's efforts to retain top talent after an executive exodus in recent years. Shareholders will vote on the proposals at Goldman's annual shareholder meeting on April 23.
Separately, Goldman added just 100 people to its ranks over the quarter. Reuters reported last month the bank was planning to trim staffing as part of an annual performance review.
As part of the cuts, it is expecting a severance charge of $150 million in the second quarter, CFO Denis Coleman told analysts on a call.
Goldman also set aside $287 million in provisions for credit losses, compared with $318 million last year. The provisions were mostly related to its credit card portfolio.
The bank has said its credit card partnership with Apple may end before its contract runs out in 2030. JPMorgan, Synchrony Financial and Barclays have been floated as potential candidates to replace Goldman, Reuters has reported previously.
Goldman also approved a $40 billion stock buyback program in the quarter.
(Reporting by Niket Nishant in Bengaluru and Saeed Azhar in New York; Editing by Lananh Nguyen, Shounak Dasgupta and Sharon Singleton)
