Goldman still cautious about economy

Fortune) -- If the worst is over for the financial sector, you'd never know it to listen to Goldman Sachs.

The New York-based investment firm posted a $1.8 billion first-quarter profit Monday evening, then capitalized on those gains by selling $5 billion in stock Tuesday morning.

The developments put Goldman (GS, Fortune 500) on track to become the first big bank to repay the funds it received from Treasury last fall in the Troubled Asset Relief Program.

Once regulators complete their stress test of Goldman and sign off on the repayment plan, the firm will again be free to manage its affairs as it pleases, without fears that details on its pay practices will provoke outrage in Congress.

Despite this, Goldman chief financial officer David Viniar was hardly celebratory on a conference call with analysts and investors Tuesday morning.

Viniar said Goldman remains cautious about the economy and suggested that the firm expects the prices of assets such as real estate to continue to fall.

While further declines may not hammer Goldman, given its reduced exposure to troubled asset classes like real estate and corporate buyout loans, they could weigh on the results of other banks in coming months. Regional banks in particular hold large amounts of commercial real estate on their books.

"There are headwinds still with values, asset values," Viniar said in response to one question Tuesday. "I think those headwinds are less for us because we don't have that many anymore ... but there are still headwinds and that makes us cautious."

Goldman shares, which have surged during the bank stock rally of the past month, dropped 5% Tuesday to about $123, in line with the price of the $5 billion offering.

The drop in Goldman's stock helped lead the KBW Bank index, which has nearly doubled off its multidecade low over the past month, lower in midday trading.

Shares of beaten down bank Citigroup (C, Fortune 500) were rising, however, while those of seemingly healthier firms such as JPMorgan Chase (JPM, Fortune 500) edged lower.

Chase and Citi are both scheduled to report their first-quarter results later this week. The stronger-than-expected earnings from Goldman and Wells Fargo last week have spurred hopes that Chase and Citi will post similarly strong results.

Barclays Capital analyst Jason Goldberg raised his earnings estimates for both banks Tuesday, saying he expects them to benefit from better capital markets results and strong mortgage revenue. He now expects Citi to post its first profit in six quarters.

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