Tuesday, September 26, 2023

Trading boom generates record revenues at Goldman Sachs

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A boom in trading and investment banking swept Goldman Sachs for fourth-quarter revenue, helping Wall Street bank more than double profits and endorsing management’s strategy for a year plan to lift the returns.

Goldman on Tuesday reported net income of $ 4.5 billion for the last three months of 2020, up 135% year on year. Revenue rose 18% to $ 11.7 billion, the highest on record for a fourth quarter. Earnings per share, at $ 12.08, was well above the $ 7.06 expected by analysts in a Bloomberg poll, in a earnings season in which other big banks, such as JPMorgan Chase, also topped expectations, but with lower margins.

Goldman shares were down nearly 1 percent in early trading, to $ 298.86.

The mix of professions at the American bank had put it in a position to be one of the main beneficiaries of a trading and investment bank windfall in the fourth quarter, volatility and central bank support in the context of the coronavirus pandemic boosted revenues in its markets division.

Meanwhile, a wave of stock quotes, and are linked mergers and acquisitions in the second half of the year heralded big gains for advisers in its investment banking division.

“It was an exceptionally strong quarter,” said Chris Kotowski, analyst at Oppenheimer.

Goldman saw a 40 percent increase in its earnings from trading stocks, the second largest reported by a Wall Street bank to date, behind Citigroup alone. Fixed income trading revenues grew 6 percent, behind JPMorgan and in line with Citi.

Bank of America, which also released results on Tuesday, suffered a 5% drop in its fixed income income, but increased its equity and investment banking income by 30% and 26%, respectively.

“I think as long as the stock markets remain strong, we might see [capital markets] activity in 2021 with respect to new issuance of shares, as interest rates move and we emerge from this pandemic, ”said BofA CFO Paul Donofrio. “You’re going to see a lot of activity in fixed income [too]. “

Goldman’s comparisons to 2019 are flattered by a sharp drop in litigation costs, which took a $ 1 billion share of fourth trimester a year ago, the bank put money aside to deal with the 1MDB money laundering and corruption scandal. The quarter also benefited from $ 1.8 billion in gains on equity investments Goldman holds in its asset management division.

On Tuesday, the US bank reaffirmed its strategic plan, which was unveiled a year ago by CEO David Solomon and is pivoting Goldman from its roots in trading and investment banking to areas such as cash management. and the digital consumer bank.

Goldman posted a 22.5% return on equity in the third quarter. Mr. Solomon has committed to a mid-term return on equity target of 14% as part of the strategic plan. The bank said it had already achieved half of the $ 1.3 billion in cost savings it was targeting over three years.

Marty Mosby, analyst at Vining Spark, said Goldman was “following the path” he charted a year ago and that he would not be distracted “just because they have this bullet in their arms. income from markets that disappear as quickly as possible. Between”.

Glenn Schorr, analyst at Evercore ISI, said Goldman has made progress in creating “a more sustainable stream of profits with higher returns by expanding and strengthening existing businesses, diversifying their products and services, and operating more efficiently “.

Despite a 22% full-year increase in earnings, Goldman only increased wages by 8%.

Consumer banking income rose 17% year-on-year to $ 1.6 billion, as the bank expanded its loan portfolio to $ 8 billion and deposits to $ 97 billion. Retail trade is still relatively small, accounting for less than 15 percent of total revenues.

Goldman’s size means it did not benefit from the release of multibillion-dollar loan loss reserves that survey Citigroup and JPMorgan Chase during the quarter. Goldman recorded provision charges of $ 293 million for the period as the prospect of higher loan losses on its credit cards more than offset lower reserves on its wholesale loans.

Its lack of retail banking also means Goldman is less affected by fears over net interest margins and subdued loan demand, which has led to a decline in Bank of America shares even as it announced. a 12% increase in net income for the fourth quarter. .


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