Goldman beats Street but dials back risk

Tue Apr 17, 2012 10:35am EDT
 
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By Lauren Tara LaCapra

(Reuters) - Goldman Sachs Group Inc surprised Wall Street on Tuesday, reporting better-than-expected profit and dialing back risk-taking in ways that are uncharacteristic for the traditionally aggressive investment bank.

In fixed income, currency and commodities trading (FICC) -- where Goldman has been known for lucrative, if risky, bets -- the bank highlighted interest-rate products as a bright spot and said other major businesses reported lower revenue.

Goldman's average daily value at risk - a key measure of risk-taking at Wall Street banks - declined by 16 percent from the year-ago period and 29 percent from the 2011 fourth quarter.

In another move that made the Wall Street firm look a little more like the less profitable, run-of-the-mill commercial banks, Goldman raised its dividend 31 percent to 46 cents per share.

It is only the third dividend increase since the bank went public in 1999. It last raised the dividend in 2006. Goldman executives have repeatedly said they prefer returning money to shareholders through stock buybacks.

The shift toward a lower risk profile comes as Goldman and other investment banks have found their profits under pressure from continuing stress in the capital markets in recent years and new regulations aimed at reducing risk at such firms, including higher capital requirements, restrictions on trading, and curbs on investments in hedge funds and private equity.

But investors had been expecting Goldman to find ways to increase profitability and post even stronger results, especially after major rivals JPMorgan Chase & Co and Citigroup Inc outperformed expectations in the first quarter.

Goldman's revenue from FICC was $3.5 billion in the first quarter, down 20 percent from a strong year-ago quarter but more than double the fourth quarter. Still, UBS analyst Brennan Hawken described the revenue as "light" against his forecast of $4.2 billion.   Continued...

 
A Goldman Sachs sign is seen on the floor of the New York Stock Exchange, April 16, 2012. REUTERS/Brendan McDermid