Goldman Sachs misses estimates on weak trading, shares drop

By Olivia Oran and Sruthi Shankar

REUTERS - Goldman Sachs Group Inc reported earnings that missed Wall Street expectations on Tuesday as weak trading revenue outweighed gains in other areas, sending its shares down nearly 3 percent in premarket trading.

The fifth-largest U.S. bank by assets generated its lowest trading revenue in five quarters even as Wall Street rivals reported gains. It blamed weakness in commodities, currencies, and credit revenue, as well as lower commissions and fees from equities trading.

Overall, Goldman's trading revenue, its biggest contributer to total revenue, dropped 2 percent to $3.36 billion. Equities trading revenue fell 6 percent while fixed income trading was essentially flat, though analysts were more disappointed in that business relative to their expectations.

Goldman's profit rose from a difficult year-ago quarter, with earnings per share of $5.15 versus $2.68 in the first quarter of 2016. But the results were well short of analyst forecasts of $5.31 per share, on average, according to Thomson Reuters I/B/E/S.

Goldman shares were down 2.8 percent at $219.95 in premarket trading.

"It sounds like they had a tough time navigating ... in 1Q," said Evercore ISI analyst Glenn Schorr. "Isn't good and it happens every once in a while for Goldman, but definitely not the norm."

Goldman's results stood in sharp contrast to other big U.S. banks that have reported earnings so far. Bank of America Corp beat expectations on Tuesday due to surge in trading revenue, similar to results from JPMorgan Chase & Co and Citigroup Inc last week. Goldman's chief rival Morgan Stanley will report on Wednesday.

Goldman has historically relied more on trading than other big banks, but has been trying to shift to more stable businesses like investment management and lending.

In a statement, Goldman Chief Executive Lloyd Blankfein described the business environment as "mixed" with client activity "challenged."

Revenue from investment banking, investment management and investing and lending all rose in the first quarter, but not enough to offset the sharp decline in trading.

Overall, Goldman's profit rose 80 percent to $2.2 billion from $1.2 billion in the first quarter of 2016, when sliding commodity prices, worries about the Chinese economy and uncertainty about U.S. interest rates led to weak results across Wall Street. Its revenue rose 27 percent to $8 billion from $6.3 billion.

The bank's expenses rose just 15 percent and it paid out a smaller share of its revenue to employees. Its closely watched compensation-to-revenue ratio was 41 percent in the first quarter, down from 42 percent a year earlier, but higher than the 38 percent ratio it reported for all of 2016.

(Reporting by Sruthi Shankar in Bengaluru and Olivia Oran in New York; Writing by Lauren Tara LaCapra; Editing by Sriraj Kalluvila and Meredith Mazzilli)