By Aparajita Saxena and Lauren Tara LaCapra
(Reuters) - Goldman Sachs Group Inc (N:GS) is so confident in its recent business boom that it will pause share buybacks in the second quarter and instead use capital to facilitate trades, loans and deals for customers, its finance chief said on Tuesday.
"Clients' demand for our balance sheet continues to be strong," Chief Financial Officer R. Martin Chavez said on a call with analysts to discuss Goldman's first-quarter results, which blew past Wall Street expectations.
Goldman reported gains in all four of its major business units, especially trading, as a surge in volatility led customers to transact more in capital markets.
Net income rose 27 percent to $2.7 billion, or $6.95 per share, easily topping the average analyst estimate of $5.58 per share, according to Thomson Reuters I/B/E/S.
Its return-on-equity, a closely watched measure of how much profit a bank can generate from shareholder money, was 15.4 percent, the highest in more than five years. Investors generally like to see the figure above 10 percent.
Even so, Goldman shares fell 1.9 percent in afternoon trading, with analysts citing concerns about the volatile nature of its core businesses. Some said the first quarter of 2017 had set a particularly low bar for improvement.
"High capital market volatility and engaged client activity in trading is challenging to predict and difficult for Goldman Sachs to execute consistently," said CFRA analyst Kenneth Leon.
Historically, Goldman offered little in the way of disclosures or business targets, but maintained a premium on its stock price because investors had faith the Wall Street bank would generate best-in-class results.
That has changed over the past year or two as its bond trading business stumbled and investors demanded better explanations.
In September, Goldman outlined how it aimed to add $5 billion in annual revenue by 2020, but even that plan has faced skepticism.
That is especially true of Goldman’s aspirations in consumer lending, where it has a relatively small business that analysts say will take time, or a significant acquisition, to grow meaningfully.
The $3 billion worth of loans Goldman’s Marcus business has generated since launching in 2016 compares with more than $400 billion in consumer loans at JPMorgan Chase & Co (N:JPM).
Trading remains Goldman's biggest business, and revenue there soared 31 percent in the first quarter as investors reacted to volatility across stock, bond, currency and commodity markets.
Overall revenue rose 25 percent to $10 billion, with investment banking, investment management and investing and lending each reporting better results. Financial advisory, which handles M&A transactions, was the only sub-segment to report a year-on-year decline.
The uptick seems sustainable because it is based on global economic growth, rising interest rates, positive labor data and the U.S. tax code overhaul, Chavez said. The last time the bank reported such strong results, three years ago, most of the surge came from one-time oddities.
Evercore ISI analyst Glenn Schorr described the $1.8 billion to $2.3 billion in revenue Goldman generated from each of its units as "pretty impressive."
"Obviously it won't always be this good,” he said in a note to clients, “but sure is cool to see a good old Goldman beat in a quarter that was far from the perfect backdrop.”
Investors have been underwhelmed by earnings beats and record profits from other big U.S. banks in recent days. Goldman rival Morgan Stanley (N:MS) reports results on Wednesday.