Profits sank at Goldman Sachs in the three months through March as the investment firm struggled with lower trading volume amid volatility on Wall Street and a more significant focus on consumer banking.
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Unlike its peers, Goldman relies heavily on its investment banking and trading revenue to bolster earnings. The Wall Street firm, however, is trying to expand its consumer operations, including partnering with Apple on its new credit card.
Still, the first quarter results reflect a slowdown in trading that has also been felt by competitors like JPMorgan Chase. Revenue in the sector dropped 18 percent to $3.61 billion in the period, the company reported on Monday.
"We are pleased with our performance in the first quarter, especially in the context of a muted start to the year,” said CEO David Solomon. “We are focused on new opportunities to grow and diversify our business mix and serve a broader range of clients globally.”
Overall, revenue fell 12.6 percent to $8.8 billion, slightly less than analysts expected. Meanwhile, profits declined 20 percent to $2.2 billion, or $5.71 per share, higher than Wall Street predictions. Bolstered by a record $835 million in net interest income, earnings in its investing and lending division was $1.84 billion -- a 14 percent year-over-year decrease.
Underscoring the results was a record 35-day government shutdown, which Solomon said led to a "significant slowdown" in companies going public. He also cited the Federal Reserve's decision to hike interest rates in December as spurring volatility in the equity markets that led to lower trading, noting that central banks around the globe are pivoting to "an accommodating policy on rates" that led to a surge in momentum at the end of the quarter.
Goldman Sachs spent $37 million on litigation costs in the period, a year-over-year decrease as the New York City-based bank addresses a scandal over the misuse of a Malaysian government investment fund, called the 1Malaysia Development Berhad fund or 1MDB. Sources previously told FOX Business the total legal costs could as much as $10 billion. Solomon on Monday declined to provide a timeline for the resolution of the legal proceedings.
The company is in the midst of pivoting away from relying primarily on Wall Street activities, expanding more into consumer banking. It is conducting a strategic review and plans to provide additional details to investors on the shift by the first quarter of 2019. The first major foray into the sector with its Apple partnership, however, drew a tepid response from critics.
"Judgements as to how disruptive the card will be will be in the eyes of the beholder," CFO Stephen Scherr told investors.
Goldman is hoping its lack of existing consumer business will allow it to succeed, given there are no constraints like legacy technology platforms. The company previously purchased Clarity Money, a personal finance application.
Last week, Chase and Wells Fargo both reported earnings that beat expectations. Profits at Wells was $5.9 billion, or $1.20 per share, while Chase posted a record $9.18 in the first quarter.