Did Goldman Sachs' (NYSE: GS) first quarter earnings provide any fodder for critics and regulators to make a final push on Dodd-Frank and the Volcker Rule? 

One of the biggest issues on the Volcker Rule was whether principal investing constitutes the kind of proprietary trading that the rule sought to restrict. Goldman certainly does not think so. 

Principal investing as opposed to strictly proprietary trading--the distinction can be quite fuzzy--has long been a key driver of earnings, especially in the pre-financial crisis years when Goldman would often goose earnings with a well-timed principal gain. The bank has no plans to shutter its special situations group--which houses proprietary-trading businesses and investments in hedge funds and private equity. Nor does it plan to stop making direct investments in big companies like the Industrial and Commercial Bank of China. 

The bank now lumps this activity into a new line item, "investing & Lending." This activity was previously included as part of FICC, but now amounts to all of the proprietary activity the bank is not willing to part with, despite the Volcker Rule. And you can see why. This line item powered the bank's revenues in the first quarter. Net revenues from Goldman's stake in Industrial and Commercial Bank of China turned up, adding $316 million, compared with subtracting $222 million a year ago. Including equity and debt principal activity (which includes a whole lot of trading), the line item was up 37 percent. "Investing & Lending" accounted for 23 percent of net earnings in the first quarter, compared with 15 percent a year earlier. 

Meanwhile, net revenue from the market-making aspect of FICC, now reported under "Institutional Client Services," fell 28 percent year over year to $4.3 billion, accounting for 36 percent of total net revenue. That compares with 47 percent a year earlier.  

It's unclear if regulators will reopen the issue of the Volcker Rule and principal activity. You get the sense they will not. But this is not an unqualified victory for the bank. Shareholders and analysts have taken note. The result will likely be a continuation of the lower multiple that has long frustrated management and a reticence by institutions to own the stock long-term. - Jim