Goldman Sachs Earnings: Bank's Profit Skyrockets To $3.5 Billion
Goldman Sachs, which is now accused by government regulators of defrauding investors, nearly doubled its income in the first quarter to nearly $3.5 billion, thanks to a $2 billion swing in the firm's principal investments.
The firm, the most profitable in Wall Street history, blew past Wall Street estimates, which expected a 43 percent increase in income.
The firm's revenues soared to $12.8 billion in the three-month period ending in March, a 36 percent increase over the same period last year. Most of the increase was due to the firm's trading and principal investments unit, the part of the firm that trades and invests for clients, as well as for itself with its own cash.
The numbers follow last week's news that the U.S. Securities and Exchange Commission charged the firm and one of its employees with civil fraud for defrauding investors by creating and selling exotic securities tied to subprime home mortgages in 2007 without disclosing that they were handpicked by a hedge fund that was betting on them to fail.
Since then, members of Congress have called for further investigation. Governments across Europe have done the same, with the U.K. Financial Services Authority opening a probe into the firm.
The $2 billion swing in the firm's principal investments -- essentially the firm's investments with its own cash -- from a $1.4 billion loss in the first quarter of last year to a $510 million profit in the quarter ending in March accounted for much of the firm's $3.4 billion rise in total revenue.
Leading members of Congress and former regulators, including former Federal Reserve Chairman Paul Volcker, want to prohibit banks from engaging in trades from their own account. The thinking is that since large banks like Goldman Sachs have access to cheap funding from the Federal Reserve and other taxpayer-funded support, they shouldn't be allowed to leverage that government support to engage in risk-laden activity.
Goldman Sachs plans to pay its employees handsomely for three months work, reserving about $5.5 billion in salary, benefits and bonuses, a 17 percent increase over the same period last year.
However, the firm's total employee compensation made up 43 percent of its total revenue, a decline from the 50 percent share during the same period a year ago.