By Sweta Singh and Lauren Tara LaCapra
(Reuters) - Goldman Sachs Group Inc (N:GS) reported its best quarterly profit in five years on Thursday, notching up big gains from trading bonds and currencies as global markets fluctuated during the first three months of the year.
Trading got a boost after the Swiss central bank scrapped a cap on the franc, the European Central Bank announced its quantitative easing program, and the U.S. Federal Reserve moved to tighten monetary policy.
That resulted in choppy trading that investment banks such as Goldman feed off. The bank's total trading revenue rose 23 percent to $5.46 billion in the quarter ended March 31.
Goldman's shares, which hit their highest since May 2008 on Wednesday, were down 0.3 percent at $200.53 in afternoon trading amid questions about whether the results were sustainable.
"Investors almost always discount trading and investment results because they're so volatile," said Michael Wong, an analyst with Morningstar, who also noted the lack of clarity on Goldman's plans to return capital to shareholders.
"Retaining potentially excess capital, when it doesn't seem to be for opportunistic purposes, makes someone wonder how much excess capital Goldman truly has or whether it's retaining capital for a potential negative contingency," Wong said.
Goldman has been more committed to trading fixed-income, currencies and commodities (FICC) than some rivals, which are abandoning the business in the face of new capital rules and a slump in client activity.
FICC revenue rose 10 percent to $3.13 billion in the first quarter, after falling 29 percent in the fourth quarter.
Total net revenue rose 14 percent to $10.62 billion.
Goldman said higher net revenue from trading currencies and interest rate products was partially offset by lower net revenue from credit products, commodities and mortgages.
"Given more normalized markets and higher levels of client activity, we remain encouraged about the prospects for continued growth," Chief Executive Lloyd Blankfein said in a statement.
The bank posted a bigger gain from trading in the quarter than JPMorgan Chase & Co (N:JPM). Bank of America Corp (N:BAC) and Citigroup Inc (N:C) reported declines. Morgan Stanley (N:MS) reports earnings on Monday.
Goldman's investment banking revenue rose 7.1 percent to $1.91 billion, the highest since 2007.
Net income applicable to common shareholders rose 41 percent to $2.75 billion, or $5.94 per share, beating the average estimate of $4.26, according to Thomson Reuters I/B/E/S.
"Overall, GS posted very strong results which show the strength of (its) business model," analysts at Keefe, Bruyette & Woods said in a note.
Goldman's return on equity was 14.7 percent in the quarter, compared with 10.9 percent a year earlier.
Compensation and benefit expenses rose 11.2 percent but were down slightly as a percentage of net revenue.
Total operating expenses rose 6 percent to $6.68 billion.