GS Goldman Sachs Group Inc

By Peter Rudegeair 

Goldman Sachs Group Inc. reported record profit and revenue in the first quarter, benefiting from a turbocharged market and an economic recovery.

Goldman posted a quarterly profit of $6.84 billion, or $18.60 a share, on revenue of $17.7 billion. Both measures were up significantly from a year ago -- when the bank posted profit of $1.2 billion on revenue of $8.7 billion -- and exceeded the expectations of analysts polled by FactSet, who forecast profit of $10.22 a share on revenue of $12.56 billion.

The first three months of 2021 were a frenetic period for banks' capital markets and trading arms. Reddit-reading retail traders sent so-called meme stocks to new heights. Record amounts of money poured into blank-check companies, several of which announced deals during the quarter to bring fast-growing companies including Social Finance Inc. and Lucid Motors Inc. to the public markets.

Goldman thrived in that environment. Trading revenue rose 47% from a year ago to $7.6 billion, thanks to a 31% increase in fixed-income, currency and commodity trading revenue and a 68% increase in stock-trading revenue.

The firm's investment bankers brought in $3.8 billion in fees arranging mergers and securities offerings, up 73% from last year's first quarter and another record for Goldman. Revenue from underwriting new initial public offerings, special-purpose acquisition companies and other sales of stock more than quadrupled to $1.6 billion.

That business is set to keep growing. Despite the high number of transactions it facilitated in the first quarter, Goldman's pipeline of coming deals stood at an all-time high at the end of March. Still, Chief Executive David Solomon told analysts not to expect a repeat of the first quarter.

"The environment, the monetary and fiscal stimulus, in addition to the economic recovery, continues to paint a relatively constructive background, but I don't think the expectation should be for it to continue at the pace we saw in the first quarter," Mr. Solomon said.

Shares in Goldman were up more than 4% in midday trading. Since the start of the year, the company's stock has risen more than 24%, hitting an all-time high of $348.81 last month.

The unwinding of large positions held by Archegos Capital Management in late March affected Goldman less than other banks, partially because the firm was among the first to unload Archegos's assets when the family office couldn't meet margin calls. Whereas Credit Suisse Group AG reported a $4.7 billion hit related to Archegos's meltdown, Goldman was able to avoid losses.

"I am pleased with how the firm handled it, and it's a reflection of the engagement and communication of teams across Goldman Sachs," Mr. Solomon said, citing the firm's risk controls. He said what made Archegos unusual was how it wound up with very concentrated positions very quickly.

Archegos notwithstanding, Goldman plans to continue expanding its prime-brokerage services for hedge funds. Average balances at its prime brokerage were at record highs in the first quarter, and the $1.1 billion Goldman earned financing stock trades was the best in more than a decade.

The bank's return on equity, a measure of how profitably it uses shareholders' money, was 31% on an annualized basis, its highest in a quarter since 2009.

Revenue in the bank's asset-management division, which includes funds and investments Goldman manages for itself and for clients, rose to $4.6 billion. Revenue in Goldman's consumer and wealth-management division, which includes its Marcus consumer bank as well as its team serving wealthy clients, rose 16% to $1.7 billion.

Operating expenses in the first quarter were $9.4 billion, up 46% from the same period last year. At the company's January 2020 investor day, Goldman executives said they were looking to cut $1.3 billion in annualized expenses over the next three years. Compensation expenses rose 87% to $6 billion, or roughly 34% of revenue.

Mr. Solomon used the conference call with analysts to address reports about burnout among Goldman's junior bankers and some high-profile senior departures. He said there was nothing unusual about attrition at Goldman this year and that the firm was hiring more staffers and enforcing stricter limits on work hours.

"People will go choose other things because they have bigger opportunities, and we welcome that," Mr. Solomon said. "Often, they become clients when they make these moves. We rarely lose people to competitors."

Write to Peter Rudegeair at Peter.Rudegeair@wsj.com

(END) Dow Jones Newswires

April 14, 2021 12:30 ET (16:30 GMT)

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