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Revenue from Goldman Sachs' investments rises 39% in first quarter

Goldman's first-quarter results show it hasn't been affected yet by a rule in last year's financial reform legislation aimed at stopping banks from making big bets by investing or trading with their own money.

April 20, 2011|By Nathaniel Popper, Los Angeles Times
  • Traders work at the New York Stock Exchange near the Goldman Sachs stall. The firms first-quarter results show that revenue from its own investments rose 39% from the first quarter of 2010.
Traders work at the New York Stock Exchange near the Goldman Sachs stall.… (Brendan McDermid, Reuters )

Reporting from New York — A provision in last year's financial reform bill that was expected to hurt Wall Street banks does not yet appear to be hitting the firm that was viewed as its main target, Goldman Sachs Group Inc.

The so-called Volcker rule is aimed at stopping banks from making big bets by investing or trading with their own money. The measure, named after its author, former Federal Reserve Chairman Paul Volcker, is intended to limit the risks taken by the banks, reducing the likelihood that they would need to be bailed out.

Although the provision has not yet been implemented by regulators, Goldman has already shut down a number of its most highflying trading desks to comply with the rule.

But the firm's first-quarter results, released Tuesday, show that revenue from the bank's own investments rose 39% from the first quarter of 2010, which was before the Dodd-Frank overhaul legislation was enacted. Those investments, which Goldman calls "principal transactions," accounted for $2.6 billion, or more than one-fifth, of the firm's revenue in the first quarter. They included private equity and hedge fund transactions entered into before Dodd-Frank was adopted.

Many analysts assumed these sorts of transactions would be barred under the Volcker rule. But Goldman executives have recently told analysts that they believe they will be able to continue with this activity.

That could explain why soon after the financial overhaul was signed into law, when many saw the legislation as a blow to Goldman's prospects, the bank's executives said they did not expect the law to cause a big hit to revenue.

In other lines of business, Goldman's first-quarter results weren't so stellar. The market-making desks that handle client trades, a big source of revenue in recent years, posted a 30% revenue drop from a year earlier. The firm's total revenue fell 6.9% to $11.9 billion.

The bank earned $2.7 billion, or $1.56 a share, in the first three months of 2011, down from $3.4 billion, or $5.56, a year earlier. The big decline in earnings per share reflected a one-time $1.6-billion preferred-stock dividend that Goldman paid to Warren Buffett's Berkshire Hathaway Inc.

After the results were released, Goldman's stock dropped $1.92, or 1.2%, to close at $151.86.

nathaniel.popper@latimes.com

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