Stocks closed lower after trading in a narrow range on low volume, as investors looked forward to earnings reports in coming weeks. The Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) fell slightly. Bank stocks led the market down and energy shares slumped, while the consumer and healthcare sectors made gains.
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Big banks are leading off the first-quarter earnings season, with Goldman Sachs (NYSE: GS) and Citigroup (NYSE: C) reporting today.
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Slump in trading hits Goldman Sachs
Goldman Sachs missed revenue estimates in the first quarter but beat profit expectations, and shares slumped 3.8%. Revenue fell 12.6% to $8.81 billion, compared with the analyst consensus of $9.04 billion. Earnings per share plunged 17.8% to $5.71 but came in well ahead of the $4.89 that Wall Street was estimating.
The decline was largely due to an 18% drop in revenue from institutional client services, where trading revenue is reported. Fixed-income trading fell 11% and equity trading revenue plummeted 24%. Goldman said the market drop in December put a damper on enthusiasm for equities, while lower market volatility also hurt results. The company also had a 34% decline in underwriting fees due to low initial public offering (IPO) activity in the quarter. Operating expenses fell 11%, thanks largely to a 20% decrease in compensation and benefits.
Goldman had reason for optimism looking forward, though, saying that institutional clients were becoming less cautious in March. The company is in the midst of a strategic review, which includes adding new, diversifying ventures such as partnering with Apple on the tech titan's new credit card .
Diversification and buybacks lift Citigroup's results
As with Goldman Sachs, Citigroup's first-quarter results were impacted by lower equity trading, but steady performance in other segments of its business mitigated the effect, and shares slipped only 0.1%. Revenue fell 1.6% to $18.58 billion, just missing the analyst consensus of $18.63 billion. Earnings per share increased 11.3% to $1.87, beating expectations for $1.80.
Revenue from equity trading fell 24%, but fixed-income trading managed a 0.8% increase, keeping the decline in markets and securities services to 5.6% to $4.7 billion. Citigroup's consumer banking business delivered flat revenue growth at $8.5 billion, while strong growth in institutional advisory fees lifted investment banking revenue 19.8% to $1.4 billion.
Citigroup's profit gains were helped by a lower tax rate and a significant reduction in share count. The company used $5 billion to buy back stock in the quarter, reducing the share count 9% compared with the period a year ago.
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