NEW YORK (AP) -- Goldman Sachs reported what seemed like a good first quarter, but analysts were more concerned about the bank's future than the past three months. They peppered the chief financial officer with questions about impending regulations, and investors sent Goldman's stock down even as other banks rose.
By the numbers, it was a decent quarter. Profit rose 5 percent and revenue was up 1 percent. Both beat analysts' expectations. Bond underwriting soared 69 percent as issuers rushed to take advantage of low interest rates and a hearty appetite for corporate debt among investors. CEO Lloyd Blankfein described the results as "generally solid."
Goldman's leaders sounded a cautious tone on a conference call with analysts, however. They said investors were still nervous about the economy and that the bank would continue to focus on controlling costs.
The results were another reminder that the U.S. banking industry has settled into a steady rhythm of slow growth and cost-cutting — a far cry from the turbo-charged era of kingdom-building that existed prior to the financial crisis of 2008. It's an especially sharp change for Goldman, long considered the king of Wall Street.
"We are very close still to the epicenter of the crisis," CFO Harvey Schwartz said on a call with analysts, describing clients' uncertainty over the economy. "So people's memories are very fresh."
Like other banks, Goldman is under pressure to find new sources of revenue as financial regulations tighten and to figure out how to make money in an uncertain economy. On the conference call, Schwartz was asked how he knew whether he was making the right decisions about what to cut from the bank and other strategy choices. Schwartz replied that didn't have a "crystal ball."
More on Goldman's first-quarter results:
—Where the earnings came from: The investment bank underwrote more bond and stock offerings. The bank also made money on its own stock investments and on managing money for clients. Revenue from advising companies on mergers and acquisitions fell. So did revenue from trading on behalf of customers.
—Why the stock went down: There was no overwhelming single reason. UBS analyst Brennan Hawken said Goldman missed his expectations for revenue from trading bonds and stocks for clients, while JPMorgan Chase and Citigroup, which already reported first-quarter results, came in better than expected.
Nomura analyst Glenn Schorr said investors were questioning how long Goldman's gains on its own investments would last. But that doubt, he said, is only natural: "Happens in most good quarters."
Others blamed the bank's unenthusiastic read on the economy, or thought that new regulations and other challenges are making Goldman's future earnings unpredictable. When analyst Mike Mayo asked about the bank's return on equity, which is just above 12 percent, Schwartz said he couldn't predict where it would be in the next several years, because "we still just don't have enough information in terms of capital rules, all the regulatory activity, to give you a view." Three years ago, Goldman's return on equity was 20 percent.
—How clients are feeling: Goldman's customers — mostly large institutions like pensions, mutual funds and hedge funds — felt more confident in January and February, then pulled back in March. They were unnerved by the banking crisis in Cyprus, inconclusive elections in Italy, and a budget impasse in the U.S. They "struggle to understand the mechanism and approach" in Europe's decision-making, Schwartz said.
—Cost-cutting: Goldman's expenses fell 1 percent. The bank cut about 400 jobs, or 1 percent of its workforce. Analysts noted that a key measure of compensation — what the bank sets aside for compensation versus total revenue — was down to 43 percent from 44 percent a year ago.
—Stress tests: Early this year, the government put the big banks through annual "stress tests" to see how they'd fare in a severe downturn, and asked the banks to submit plans for how they'd return money to shareholders. Last month, the Federal Reserve said it had concerns about unspecified weaknesses in Goldman's capital plan and told the bank to submit a new one by the end of September. Schwartz said Goldman would work closely with the Fed to address its concerns. He said he couldn't comment on what caused the Fed's objection, because he didn't have "visibility into their numbers."
"The stress test is a really good concept," Schwartz added. "Quite frankly, if there was a version of a stress test prior to the crisis, maybe it would have had some mitigating effects. ... But it is evolutionary, and it is complex, and so we will have to see how it evolves."
—Regulations: New regulations governing revenue sources, such as how the bank trades for its own account, are gradually coming on line. The banking industry has been frustrated by a lack of clarity about the rules, but Schwartz said Tuesday it was natural for rulemaking to take years, given the amount of work required and the potential ramifications on the industry and the economy.
Schwartz also said it made more sense to wait for the regulations before making big changes to the business, rather than trying to guess what they might be.
"Trying to anticipate rules can be quite costly and you can make major mistakes," he said. "So you're not seeing us dial down or up our businesses in anticipation of rules."
—By the numbers: Goldman earned $2.2 billion in the first quarter, up from $2.1 billion a year ago. That worked out to $4.29 per share, beating the $3.90 predicted by analysts polled by FactSet.
Revenue was $10.1 billion, up from $9.9 billion. That also beat analysts' forecast of $9.7 billion.
Goldman's stock fell $2.36 to close at $144.10 Tuesday, a loss of 1.6 percent.