World news – Goldman Sachs benefits more than twice, driven by trade

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Goldman Sachs Group Inc.

GS -1.31%

reported significantly higher earnings for the fourth quarter, a tumultuous year in which the Wall Street company benefited from the rapid recovery in markets after the worst of the pandemic-triggered recession.

Goldman reported quarterly earnings of $ 4.51 billion, or $ 12.08 per share, on Tuesday, more than double the prior-year quarter. Revenue of $ 11.74 billion was 18% above the fourth quarter of 2019. Both measures were much better than the expectations of analysts surveyed by FactSet, who reported earnings of $ 7.39 per share of revenue of 9.99 Goldman’s total annual revenue of $ 44.56 billion was its highest since 2009, while annual trading revenue reached a 10-year high.

2020 was a roller coaster year for the US banking industry. Markets collapsed and economic activity slowed in the spring as the coronavirus spread across the country. With many businesses closed and many consumers unemployed, banks prepared for widespread failures. A robust federal spending program helped forestall the worst economic scenario, and bank executives signaled in earnings reports last week that the economy has held up better than expected.

On Friday,

JPMorgan Chase

& Co. announced that fourth quarter earnings rose 42% to a record $ 12.14 billion after the bank released $ 2.9 billion of its previously allocated funds to cover sour loans. On Tuesday,

Bank of America Corp.

Earnings fell 22% but exceeded analysts’ expectations after $ 828 million was released from loan loss provisions.

With its relatively small loan volume and high exposure to subscription and trading paper, Goldman has been better positioned for the environment than comparable companies in recent months. IPOs, corporate bonds, and major stock indices hit new records in 2020 – all trends from which Goldman benefited.

Trading revenue increased 23% year over year to $ 4.27 billion. The company’s investment bankers brought in $ 1.64 billion in fees tied to arranging corporate stock and bond offerings, up 68% year over year, and merger fees of 1.1 Billion US dollars.

The bank’s asset management revenue, which includes funds and investments that Goldman manages for itself and its clients, increased 7% to US $ 3.21 billion for the quarter. Goldman’s Consumer and Wealth Management business, which includes Marcus Consumer Bank and its high net worth client team, increased 17% in the quarter to $ 1.65 billion.

Goldman’s profit was due to the small number of its corporate banking and consumer finance offers was less influenced by high provisions for expected future depreciation. Still, the bank made $ 293 million available for loan losses in the fourth quarter, in part due to higher expected write-downs on its new credit card business.

Goldman’s stock has risen roughly 60% since late October, hitting a record high of $ 307.87 last week. This brought the bank’s market value to over USD 100 billion. The rally in Goldman’s shares followed news that the company had reached a $ 2.9 billion settlement with the Justice Department over a year-long investigation into its role in assisting a corrupt Malaysian government fund called 1MDB.

Operating expenses were $ 5.91 billion for the fourth quarter, down 19% from the same period last year. On the company’s Investor Day in January 2020, Goldman executives said they wanted to cut annualized costs by $ 1.3 billion over the next three years. Compensation expenses decreased 19% to $ 2.48 billion. Compensation expenses amounted to around 30% of sales in the reporting year.

The bank’s return on equity, a measure of how profitably it uses shareholders’ money, was 21.1% in the fourth quarter.

Ref: https://www.wsj.com