RPT-BREAKINGVIEWS-Investors reward Goldman for being its true self

By Stephen Gandel

NEW YORK, April 14 (Reuters Breakingviews) - Goldman Sachs GS.N is returning to its roots, even as it continues to talk about branching out. The Wall Street investment bank on Monday reported better-than-expected earnings as its equity and bond traders cashed in on volatile markets in the first quarter, bringing in nearly 60% of the firm’s revenue of $15 billion. CEO David Solomon has sought to woo investors by emphasizing businesses like asset management and lending, which are less exposed to gyrations in asset prices. But shareholders may be fine with Goldman, which is still retreating from an ill-fated detour into consumer lending, playing to its traditional strengths.

Though turbulent markets snuffed out the anticipated boom in mergers and initial public offerings in the first quarter, Goldman benefited in other ways. Revenue from facilitating the buying and selling of stocks on behalf of clients generated a record $4.2 billion, up 21% from the final quarter of 2024, itself a record. Goldman’s traditionally larger fixed income, currency and commodity business also delivered solid income, up 61% from a subdued fourth quarter.

The result is that the $150 billion bank looks a lot more like it used to in the days before the 2008 financial crisis, when trading activity regularly produced more than two-thirds of its top line. It’s unclear if that is happy circumstance or Solomon’s aim. Chief Financial Officer Denis Coleman on Monday emphasized the $3.7 billion that the firm earned from asset and wealth management, calling those revenues “durable,” even though Goldman's income from that business shrunk 22% quarter-on-quarter.

Either way, shareholders seem happy to be along for the ride. Goldman for the first time in a while appears to be drawing some of the admiration that investors have previously lavished on Morgan Stanley MS.N, which pivoted toward wealth management shortly after the financial crisis. Goldman still trades at a roughly 15% discount to its archrival when valued on a multiple of forecast earnings for the next 12 months, according to LSEG data. As recently as four years ago, though, the gap was twice as large.

Short memories may play a role, but Goldman's trading prowess also appears to come without extra risk. Despite the improvement in markets revenue, Goldman's average daily exposure to potential losses dropped slightly quarter-on-quarter, as measured by an industry-wide metric known as value-at-risk (VaR). Morgan Stanley and JPMorgan JPM.N both reported higher VaR in the quarter, with the bank run by CEO Jamie Dimon registering a 25% increase. More revenue with less risk makes for a good business model, especially when investors are willing to bet it can continue.

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CONTEXT NEWS

Goldman Sachs on April 14 reported earnings of $4.7 billion for the first quarter, up 15% from the same period a year earlier. Market volatility in the first quarter drove one of the best quarters in the firm’s history for the firm’s traders.

Goldman Sachs shares were up 2% at $505 at 1530 GMT on April 14.