Goldman Sachs (NYSE: GS) reported first-quarter earnings that, not surprisingly, beat analyst expectations for both revenue and earnings. However, the bank's strong trading revenue and some of the other details of the report are certainly a breath of fresh air for Goldman's investors.

Here's a rundown of the headline numbers, as well as the other highlights of Goldman's first quarter. All things considered, Goldman's earnings may be the best of the banks that have reported so far.

Entrance to a bank building with the word bank engraved over the doorway.

Image Source: Getty Images.

The headline numbers

Just as the rest of the largest U.S. banks have done thus far this earnings season, Goldman Sachs beat analysts' expectations on both the top and bottom lines. And Goldman did so by a big margin.

Goldman Sachs' revenue grew by 25% year over year to $10.04 billion -- the company's highest in three years, and handily ahead of analysts' $8.74 billion expectation. The bank earned $6.95 per share, more than 24% higher than the $5.58 consensus estimate.

Winning the trading wars

After several quarters of dismal trading revenue, particularly in fixed-income, currencies, and commodities (FICC) trading, Goldman Sachs redeemed itself during the first quarter.

The bank's FICC trading revenue soared 23% year over year thanks to the volatile quarter, and it represented the highest quarterly FICC revenue in three years.

More impressively, Goldman's FICC revenue increased sharply while peers struggled. Take a look at how Goldman's trading revenue growth compares with other major institutions.


1Q 2018 FICC Trading Revenue

Year-Over-Year Growth Rate

Goldman Sachs

$2.07 billion


JPMorgan Chase

$1.1 billion


Bank of America

$2.5 billion



$3.4 billion


Data source: Company earnings reports. Numbers in parenthesis represent declines in trading revenue.

Goldman's other businesses are strong

In addition to strong FICC trading revenue, Goldman's earnings report was pretty strong all around. Here's a quick rundown of some of the other highlights:

  • Equities trading revenue increased by 38%, thanks to stock market volatility.
  • Investment banking revenue grew 5% year over year, with particularly impressive 27% growth in underwriting revenue.
  • The bank's Investing & Lending segment's revenue soared 43% year over year -- a combination of strong equity returns and higher interest rates on debt securities and loans.
  • Goldman's investment management revenue climbed 18% from a year ago, and assets under supervision increased to $1.5 trillion.
  • Goldman's return on equity (ROE) of 15.4% was the highest in more than five years, fueled by growth as well as the savings associated with tax reform, which I'll discuss next.
  • The bank's total assets of $974 billion represent 6.2% annual growth.

Tax reform is a big help to Goldman's bottom line

Now that the first quarter of 2018 is in the books, we're getting our first look at the actual impact of the Tax Cuts and Jobs Act on U.S. businesses.

In Goldman Sachs' case, tax reform is having a pretty big impact on the bottom line. The bank's effective tax rate for the first quarter dropped to 17.2% is down from 22% in 2017 (excluding one-time items related to the tax bill). In terms of dollars, Goldman had pre-tax earnings of about $3.4 billion for the quarter, so this saved the bank more than $160 million.

Shareholders get a dividend increase

To be clear, Goldman Sachs is not a high-dividend stock by virtually any definition of the term, and I don't expect that to change anytime soon. Management loves returning capital to shareholders, but it prefers to do so in the form of share buybacks. In fact, during the first quarter alone, Goldman repurchased three million shares, about 0.8% of the total.

However, the bank's dividend payout did get a little better, as a $0.05 quarterly dividend increase was announced along with earnings. The quarterly payment is now $0.80 per share, which translates to an annualized yield of about 1.2%.

The bottom line: A great quarter

To sum it up, there isn't much reason for disappointment in Goldman Sachs' earnings report, which is why the stock is up following the announcement, as opposed to the other big banks, whose stock prices fell after their earnings releases.

Perhaps the most encouraging part of the bank's report is the sharp increase in trading revenue, which had been a major cause for concern for investors over the past few quarters. In all, investors should be happy with the bank's earnings, and if Goldman keeps up this level of performance throughout 2018, it could be a good year for shareholders.