Goldman Sachs earnings: $5.08 a share vs. $4.82 estimate

Cramer: Tug of war for financial stocks based on interest rates

Goldman Sachs posted earnings Wednesday that easily topped market expectations on both the top and bottom lines. Shares were volatile on the news, with early losses erased as the stock moved slightly higher in premarket trading.

The Wall Street giant said it earned $5.08 a share on revenue of $8.17 billion, with $2.15 billion in net income representing a near-quadrupling in profit. Goldman was expected to post earnings of $4.82 a share on revenue of $7.742 billion, according to analysts surveyed by Reuters. Return on equity was 11.4 percent compared to a 10 percent benchmark for cost of capital.

A jump in trading revenue helped spur the growth, with revenue from bond-related trading soaring 78.3 percent from a year ago to $2 billion. The bank attributed the gain to a fourth-quarter environment "generally characterized by improved market conditions, including rising interest rates and tighter credit spreads." The news came a day after Morgan Stanley said its trading revenue spiked 173 percent.

The bank said its operating expenses were the lowest since 2008, a key metric that investors are watching. Goldman ended the year with 34,400 workers, a 6.5 percent reduction from the previous year's total of 36,800. Non-compensation expenses tumbled 44 percent in the quarter to $2.33 billion, the company said.

"After a challenging first half, the firm performed well for the remainder of the year as the operating environment improved," chairman and CEO Lloyd C. Blankfein said in a statement. "We continued to manage our expenses carefully and we enter the new year with industry leading positions across our businesses, as well as strong capital and liquidity."

'Challenging environment'

Profits also were helped by a 3 percent full-year rise in the closely watched fixed income, currency and commodities part of the business, which saw revenues of $7.56 billion. That boost came in large part to a strong fourth-quarter with $2 billion in revenue, but the bank warned of a "challenging environment generally characterized by low interest rates, political uncertainty and slow global economic growth during the year."

The company's earnings come as most big banks have beaten Wall Street estimates. Citigroup also reported Wednesday morning, showing a profit of $1.14 a share against estimates of $1.12, though revenues missed.

Investors have been scooping up bank stocks since the November election of Donald Trump. Expectations of higher growth, less regulation and a rise in interest rates have fueled hopes that, after a lackluster performance during the recovery, bank stocks will catch fire.

However, the rally has slowed some lately. The KBW Nasdaq Bank Index is down more than 2 percent in 2017, though it has risen 14 percent since the election. Goldman's stock has seen a gain of close to 30 percent during the period.

Goldman helped its stock performance with $1.5 billion in share buybacks.