Goldman Sachs Group Inc. said its quarterly earnings rose 47% and handily beat expectations as the Wall Street firm's trading division bounced back from a slow start to 2016.
The New York-based firm reported a profit of $ 2.09 billion, or $ 4.88 a share. That easily surpassed the $ 1.43 billion, or $ 2.90 a share, it reported in the same period last year.
Revenue grew 19% to $ 8.17 billion from $ 6.86 billion a year earlier, when sluggish trading activity across Wall Street—particularly in fixed-income, where Goldman is strongest—dragged down earnings.
Analysts polled by Thomson Reuters had expected Goldman to earn $ 3.82 a share on revenue of $ 7.42 billion. Shares climbed 2.4%.
"We saw solid performance across the franchise that helped counter typical seasonal weakness," Chief Executive Lloyd Blankfein said in prepared remarks.
The firm's return on equity, a closely watched measure of profitability, rose to 11.2% in the third quarter. It was 7% a year ago and hadn't exceeded 10%—its theoretical cost of capital—since early 2015. The firm's ROE nearly eclipsed that of Wells Fargo & Co., which posted an 11.6% ROE in the third quarter and has recently enjoyed a profitability advantage over more Wall Street-focused peers such as Goldman.
Goldman shares have risen nearly 14% since the end of the second quarter, nearly overcoming a weak first half. They remain down 6% year to date, slightly worse than the KBW Nasdaq Bank index, which is down about 3%.
Investors had expected a strong quarter from Goldman after rivals including J.P. Morgan Chase & Co. and Citigroup Inc. reported big boosts for their trading businesses.
Goldman got a similar bump. Trading revenue rose 17% to $ 3.75 billion from $ 3.21 billion in the same quarter last year.
And it made more money while taking less risk: Average daily value-at-risk, a measure of how much the firm could lose on an average day, fell to $ 57 million in the quarter. That is down from $ 62 million last quarter and a postcrisis low.
The New York firm is more reliant than many of its rivals on trading, which typically makes up half of Goldman's revenue.
During the third quarter, fixed income, currency and commodity trading revenue rose 34% to $ 1.96 billion, excluding an accounting adjustment, from $ 1.46 billion a year earlier, which was among that business's worst quarters since the crisis.
Stock-trading revenue rose 2% to $ 1.78 billion, the best among muted equities results at other big trading firms this quarter.
Revenue from investment banking, which include merger advisory and capital-raising, fell 1.2% to $ 1.54 billion from $ 1.56 billion in the third quarter of 2015.
Goldman, Wall Street's top adviser on mergers and acquisitions, reported revenue of $ 658 million from that business during the third quarter, down 19% from $ 809 million a year ago, amid signs that the record M&A boom may be calming.
Debt-underwriting revenue rose 17% to $ 652 million from $ 557 million a year ago. Goldman has been pushing to underwrite more loans and bond offerings, particularly those linked to takeover deals.
That has required a pivot from its historical strength as a sell-side adviser, but can carry bigger fees and also boosts the bank's net interest income.
Fees on initial public offerings and other stock sales rose 19% to $ 227 million, bucking a trend across Wall Street. Some other banks reported sharply lower fees in that business, as few startups have gone public in recent months, preferring to find cheap capital elsewhere.
Goldman was coming off its worst first half under Mr. Blankfein, who's run the bank since 2006. Despite its recent push into consumer-facing businesses, such as offering savings accounts and online loans, the firm still relies heavily on its investment banking and trading businesses to generate profits.
Those divisions have been hurt by skittish clients, reduced volatility and quieter IPO markets over the past year. In response, Goldman has shed several hundred jobs this year, including traders in New York and London and investment bankers in Asia.
The firm's non-compensation expenses fell 15% from this time a year ago, but compensation expenses rose, standing at 39% of revenue, versus 34% a year ago. The firm's employee ranks was about flat from last quarter's 34,800, but down 5% from a year ago.
Revenue from Goldman's investment-and-lending arm, a collection of debt and equity holdings, more than doubled from a year earlier to $ 1.4 billion. That business tends to swing wildly as positions are marked to market, and began 2016 with its worst quarter in five years.
The firm's investment management arm, which oversees money for pension funds and other big institutional investors, posted revenue of $ 1.49 billion, up 4.4% from $ 1.42 billion last year. It has seen inflows over the past year, a rarity among active managers as investors shift toward passive strategies and has launched several exchange-traded funds.
Corrections & Amplifications:
Average daily value-at-risk, a measure of how much the firm could lose on an average day, fell to $ 57 million in the quarter. That is down from $ 62 million last quarter. An earlier version of this article misstated the figures. (Oct. 18, 2016)
Write to Liz Hoffman at liz.hoffman@wsj.com and Rachel Louise Ensign at rachel.ensign@wsj.com
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